UBS sees Philippine growth at low end of 5%-6% goal this year

Philippine economic growth may land at the bottom of the government’s 5% to 6% goal this year as investment slowly recovers from last year’s flood control scandal, UBS Investment Bank Global Research said.

“Growth is near its trough, and we expect quarterly sequential momentum to strengthen to 1.4% over the next two quarters, and GDP (gross domestic product) growth to be 5% in 2026,” it said.

That would top last year’s 4.4% growth, which was weighed down by a corruption scandal that hit investments, household spending and government outlays.

It would also mark a return to the government’s target after three consecutive years of misses. UBS expects public investment to rebound early this year before normalizing toward yearend.

“In our revised forecasts, we assume a gradual and backloaded recovery in public investment, starting with a small uptick in the first quarter of 2026, with spending returning to second-quarter 2025 levels by the fourth quarter of 2026,” it added.

Gross capital formation, the investment component of GDP, fell 2.1% last year after a 10.9% drop in the fourth quarter, the biggest in more than four years.

Economic managers said corruption allegations from last year’s flood mess undermined business and investor confidence.

Across Southeast Asia, UBS expects the six major economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — to expand by about 4.9% this year.

“The region continues to benefit from deep integration into global manufacturing value chains, supported by a sizable domestic market,” Grace Lim, senior ASEAN (Association of Southeast Asian Nations) and Asia economist at UBS Investment Bank Global Research, said in a statement.

“Conditions for growth remain in place, with household consumption driving momentum in Indonesia, an increase in private investment under way in Thailand and the Philippines, and resilient tech related export strengths in Singapore and Malaysia,” she added.

Remittances, a key source of foreign inflows, could help cushion the economy, but analysts warn that global shocks may pose risks.

The Middle East war is likely to weigh on growth, according to Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa.

“For the economy, we’ll likely brace for weaker growth,” he said in a note. “Inflation is expected to breach the target and the central bank’s easing cycle is over.”

The peso-dollar rate is pressured higher as a bloated oil bill means more demand for dollars, he added.

The war could prompt the Bangko Sentral ng Pilipinas to hike rates, ending a nearly two-year easing cycle.

“The war in the Middle East likely means inflation will breach the target, growth will stay at 4% and the next [central bank] move is a hike and not a cut in 2026,” the Metrobank economist separately said in a post on social media platform X.

The Monetary Board last month cut the reverse repurchase rate by 25 basis points (bps) to 4.25%, the lowest since August 2022, trimming key rates by 225 bps since easing began in August 2024.

Singapore-based DBS Bank warned the Philippines might see the highest regional price pressures from oil.

“Amongst the ASEAN-6 countries, the net oil trade balance is most adverse in Thailand, Malaysia and Vietnam (as a percentage of GDP), with the pass-through to price pressures most material in Thailand and the Philippines,” DBS Senior Economist for Eurozone, India and Indonesia Radhika Rao and Senior Economist for ASEAN Chua Han Teng said in a note.

The Department of Energy has warned that oil price increases in the local market would continue as the Middle East war could last weeks.

Since January, pump prices have increased by P6.70 a liter for gasoline, P9.40 for diesel and P7.70 for kerosene.

Source: Business World

UBS sees upside but maintains PH forecast

Philippine economic growth will likely pick up this year but still fall below target, the research unit of Swiss-based multinational UBS said.

"For the Philippines, we are quite cautiously optimistic," UBS Senior Asean Economist Grace Lim told reporters on Wednesday.

Lim said that UBS was keeping its 5.7-percent forecast for Philippine growth, "with some upside risk to consumption if inflation falls quickly enough."

While higher than the 5.6 percent posted last year, it is still below the government's 6.5-7.5 percent target.

UBS expects growth to improve to 6.0 percent in 2025, also below the official medium-term goal of 7.5-8.0 percent.

Lim said that public-private partnership (PPP) projects, "if they do come through, could be another source of growth."

The PPP Center is currently evaluating 117 projects amounting to P2.5 trillion. It expects to approve 15 solicited projects this year and an additional 13 in 2025.

Lim noted that the economic impact of such large-scale investments would be spread out, "so, in terms of the growth perspective ... we are cautiously optimistic that it would be an upside risk for investment and GDP (gross domestic product) growth."

Despite the inflation risk, meanwhile, she noted that a robust labor market and substantial employment growth had played a crucial role in more than compensating for the negative effects.

"Now that inflation is likely to fall ... the only pockets of price pressures we are seeing is in terms of rice," Lim said.

"Everything else seems to be easing quite nicely. The improvement or tailwinds from reduced inflation could be another upside to consumption if this is sustained," she added.

Inflation is expected to decline to 3.0 percent this year from 6.0 percent last year. This is well within the 2.0-4.0 percent target of the Bangko Sentral ng Pilipinas (BSP).

"Apart from rice inflation, core inflation is quite well contained, supporting our view that inflation will settle around 3.0 percent by the end of the year as rice supply constraints ease," Lim said.

"A resilient labor market should support consumption, whilst lower commodity prices should help to ease the current account drag," she added.

If current trends persist, Lim said the BSP could implement 100 basis points of interest rate cuts this year.

The central bank's policy rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes since May 2022 as inflation started surging.

Monetary authorities have paused for the last three policy meetings and are expected to begin easing in the second half or June at the earliest.

Lim also said that Philippine banks would likely post credit growth of slightly above 10 percent this year.

"We don't see any evidence of asset quality risk. And as rates come down a little bit, that could actually spur demand for loan growth," she said.

"Our Philippine banks analyst is also positive on asset quality in the sector. Also, if there are big PPP projects coming through, that could also spur some demand for loans — that might be maybe towards the second half of the year."

Source: Manila Times