GDP growth likely below target in Q3

Typhoons and the ongoing corruption scandal involving government flood control projects may have led to slower economic growth in the third quarter, the University of Asia and the Pacific (UA&P) said.

In its latest The Market Call report released on Wednesday, UA&P said Philippine gross domestic product (GDP) likely grew by 5.2% last quarter, below the government’s 5.5-6.5% target.

“We project a GDP slowdown to a 5.2% year-on-year pace in (the third quarter) due to more weather disturbances and the popular uproar over the flood control controversy,” UA&P Senior Economist Victor A. Abola and economist Marco Antonio Agonia said.

This is slower than the 5.5% expansion recorded in the second quarter but would match the pace recorded in the same three-month period last year.

Third-quarter GDP data will be released on Nov. 7.

Economy Secretary Arsenio M. Balisacan earlier said growth might soften further in the third quarter due to typhoon-related disruptions but could still meet the lower end of the government’s goal.

Meanwhile, the UA&P economists said economic growth could pick up to 5.7% in the fourth quarter, which would bring the full-year average to the low end of the government’s goal.

Mr. Abola and Mr. Agonia said there are “positive signs of recovery” this quarter as they expect inflation to remain benign and average at just 1.6% in the three-month period, which would support domestic demand.

Headline inflation picked up to 1.7% in September, faster than the 1.5% clip in August but slower than the 1.9% seen in the same month last year. Still, this marked the seventh straight month that the consumer price index (CPI) was below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% annual target.

For the first nine months, inflation averaged 1.7%, matching the BSP’s full-year forecast.

They added that the employment recovery seen in August also bodes well for growth. The country’s unemployment rate eased to 3.9% that month amid increased hiring activity in the agriculture and construction sectors, lower than the three-year high of 5.3% in July and 4% in the same month a year ago. However, the year-to-date jobless rate was a tad higher at 4.1% from 4% last year.

“Robust” remittances from overseas Filipino workers could also support consumption, they said, and exports also remain steady despite the tariffs imposed by the United States on Philippine goods.

Cash remittances rose by 3.2% to $2.977 billion in August, bringing the eight-month tally to $22.909 billion, up by 3.1% year on year. Filipinos abroad are expected to send more money home in the coming months amid the holiday season.

Meanwhile, the country’s exports climbed by 4.6% in August, slower than the 17.6% growth seen in July but faster than the 0.4% a year earlier. This led to the narrowest trade gap in six months at $3.54 billion.

More rate cuts

The UA&P economists also expect further monetary easing until next year as inflation remains low, which would provide more economic stimulus.

“With its view of ‘benign’ inflation until 2027, BSP will likely cut another 25 bps (basis points) before the end of 2025 to bring policy rates to 4.5%,” they said.

“More easing in 2026 should bring policy rates to 4% or lower by end-2026.”

The central bank sees inflation averaging 3.1% in 2026 and 2.8% in 2027, well within its 2-4% target.

The Monetary Board this month unexpectedly lowered benchmark borrowing costs by 25 bps for a fourth straight meeting, bringing the policy rate to 4.75%. It has now cut rates by a total of 175 bps since kicking off its easing cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. said another reduction is possible at their last meeting this year on Dec. 11. He added that they could extend their rate cut cycle until next year as they now see the neutral nominal policy rate to be closer to 4% than their earlier projection of 5% as they see the need for a more accommodative stance as governance issues related to the corruption mess have led to softer growth prospects due to weakening investor sentiment.

Mr. Abola and Mr. Agonia added that lower benchmark rates would also support the Philippine bond market and ease the government’s interest payment burden. — Katherine K. Chan