GDP likely picked up in 2nd quarter, UA&P says

Philippine economic growth likely picked up in the second quarter, supported by stable inflation and improved labor market conditions, the University of Asia and the Pacific (UA&P) said.

In its latest The Market Call released on Monday, UA&P said economic indicators have turned “slightly more positive,” and expects the gross domestic product (GDP) to expand by 5.6% in the second quarter from the 5.4% growth in the first quarter.

Year on year, this would be slower than 6.5% in the second quarter of 2024.

It would also be below the government’s target range of 6-8% for this year.

“Below floor (2%) year-on-year inflation from March to May, acceleration in infrastructure spending and higher employment should enable consumers to spend more,” it said.

Inflation cooled to an over five-year low of 1.3% in May, as utility costs rose at a slower pace. This brought the five-month average to 1.9%, slightly below the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band.

Data from the Philippine Statistics Authority showed around 650,000 new jobs were created in April, bringing the number of employed Filipinos to 48.67 million. However, the unemployment rate increased to 4.1% in April from 3.9% in April 2024.

UA&P noted consumer spending likely strengthened in the second quarter despite a negative consumer outlook.

The latest BSP Consumer Expectations Survey showed Filipino consumers turned pessimistic for the second quarter but kept an optimistic outlook for the next 12 months.

UA&P said ongoing infrastructure projects likely accelerated spending by the National Government in May.

“The external outlook showed signs of modest improvement and should not pull down domestic demand expansion,” it added.

Further easing

UA&P expects the BSP to deliver another 25-basis-point (bp) rate cut in the third quarter.

“Another BSP cut is likely in Q3 if crude oil prices prove transitory or moderate,” it said.

Last week, the Monetary Board cut the target reverse repurchase rate by 25 bps to 5.25% from 5.5% amid a moderating inflation outlook and weaker growth.

UA&P said the US Federal Reserve may delay its own rate cuts to later this year.

“We expect peso depreciation as BSP’s and Fed’s policy rate decisions diverge, along with the worsening Israel-Iran conflict,” it said.

BSP Governor Eli M. Remolona, Jr. earlier signaled that a rate cut in August was on the table depending on the data and a further escalation in the Middle East conflict.

Meanwhile, GlobalSource Partners Country Analyst Diwa C. Guinigundo said the BSP was “well-justified” in its decision to cut rates as inflation continues to slow.

“Its decision to reduce its policy rate for the second time not only reflected its large monetary space but also its assessment that risks have yet to materialize,” he said in a report dated June 23.

He also noted the weaker-than-expected growth in the first quarter “could be supported by dovish monetary policy.”

“With its nimble performance in terms of assessment and appropriate action, the BSP is expected to deliver another rate cut in the second half of 2025, actual data permitting,” he added.

Mr. Guinigundo also noted that the possible impact of rising oil prices triggered by the escalating war in the Middle East was “too real to ignore.”

“Another point to consider is what could happen to the differential between the BSP’s policy rate and the US Fed Funds rate. Current dynamics seems to suggest that if the differential falls below a hundred basis points, some capital outflow could ensue and lead to a weakening of the peso,” he said. — Aubrey Rose A. Inosante