NEDA sees faster growth in 2nd half

Philippine gross domestic product (GDP) growth in the second semester could be faster than the 6% average in the first half amid easing inflation and lower policy rates, the National Economic and Development Authority (NEDA) said.

“Now, with inflation lower, with policy rates lower, with the labor market continuing to be robust, I think we would see an even better second half than in the first half,” NEDA Secretary Arsenio M. Balisacan told BusinessWorld on the sidelines of a Senate hearing on Wednesday. 

In the second quarter, GDP expanded by 6.3%, bringing the first-half growth to 6%.

“We are expecting 6-7% (GDP growth) for the full year, and I think that the likelihood that we’ll achieve that is now very high,” Mr. Balisacan said.

However, even as inflation eased to a seven-month low of 3.3% in August, Mr. Balisacan noted that the economy remains sensitive to inflationary pressures.

Year to date, inflation averaged 3.6%, settling within the 2-4% target range of the Bangko Sentral ng Pilipinas (BSP).

The inflation downtrend has allowed the BSP to begin its easing cycle with its first rate cut in nearly four years last August. The Monetary Board lowered the policy rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.25% previously.

Mr. Balisacan noted the impact of lower policy rates “is not almost instantaneous.”

Despite this, the Philippine and US central banks’ expected easing path should help boost investment activity and support growth, he said.

“Especially now that the expectations everywhere with the Fed expected to decrease (interest rates)… then, there is now greater stimulus for us to continue lowering the policy rates,” he said.

“With the business community hearing that, they are likely to rethink their investment plans.”

BSP Governor Eli M. Remolona, Jr. earlier signaled another 25-bp cut in the fourth quarter. The last two Monetary Board meetings for the year are scheduled on Oct. 17 and Dec. 19.

Meanwhile, GDP growth is expected to settle within the government’s target range this year, but may fall short of the growth goals in the next two years, according to the latest forecasts from the BSP’s Policy Analysis Model for the Philippines.

“The overall balance of demand and supply conditions, as captured by the output gap or the difference between actual and potential output, indicates limited demand-based inflation pressures over the policy horizon,” the central bank said in its August 2024 Monetary Policy Report.

The BSP said growth prospects are “relatively stable for the rest of the year, driven by robust construction spending and the timely implementation and expanded coverage of various government programs.”

The central bank said economy could miss the 6.5-7.5% and 6.5-8% targets for 2025 and 2026, respectively.

The BSP said that higher consumption, driven by remittances and wage hikes, could offset the impact of cumulative rate hikes.

“This will bring domestic output closer to its potential over the policy horizon,” it said.

The BSP also said that improvements in labor market conditions and continued investment growth could help drive growth.

“Productivity growth is also expected to improve further due to robust economic activity and stable infrastructure spending,” the BSP added. “Moreover, key reforms could shore up investments and business activity, and help accelerate the country’s potential output.” — Beatriz Marie D. Cruz, Reporter, with Aaron Michael C. Sy