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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 

Regional wage boards have approved increases in the daily minimum wages of workers in the Cavite, Laguna, Batangas, Rizal, Quezon (Calabarzon) provinces and in Central Visayas, the Department of Labor and Employment (DoLE) said on Monday.

The Regional Tripartite Wages and Productivity Boards (RTWPB) of Region 4-A and Region 7 issued wage orders granting hikes ranging from PHP 21 to PHP 75 per day in Calabarzon and from PHP 33 to PHP 43 for workers in Central Visayas, depending on the geographical area and labor sector.

The increases will take effect on Sept. 30 for Calabarzon and Oct. 2 for Central Visayas. Once implemented, the new minimum wage rates in the private sector for Calabarzon will range from PHP 425 to PHP 560, while those for Central Visayas will be from PHP 453 to PHP 501.

“Both adjustments were reached through consensus and unanimously approved by the government, labor and employer representatives in both RTWPBs, and have likewise been unanimously affirmed by the National Wages and Productivity Commission (NWPC),” the DoLE said in a statement.

“The new rates for workers in private establishments translate to about a 7%-8% increase from the prevailing daily minimum wage rates in the two regions and will result in a comparable 11% increase in wage-related benefits,” it added.

President Ferdinand R. Marcos, Jr. in his third State of the Nation Address in July ordered wage boards to review regional minimum wage rates before the anniversaries of previous wage increases. The last wage order for Calabarzon took effect on Sept. 24, 2023, while that for Central Visayas was implemented starting Oct. 1, 2023.

The new wage orders are expected to benefit 1.2 million minimum wage earners in the two regions, the Labor department said.

About 2.7 million full-time wage and salary workers earning above the minimum wage may also indirectly benefit from upward adjustments to correct wage distortion, it added.

Under the wage order issued by the wage board of Calabarzon, the increases will be given in two tranches in some areas — the first upon the order’s effectivity on Sept. 30, and the second on April 1, 2025.

“RTWPB 4-A re-categorized the grouping of areas on the basis of the income classification of local government units, and simplified the wage structure into the agriculture and non-agriculture sectors and retail establishments employing not more than 10 workers,” the DoLE said.

For nonagriculture workers, the daily minimum wage will increase to PHP 560 for those in the extended metropolitan area, to PHP 520 for those working in first-class municipalities, and to PHP 450 for those in second- and third-class municipalities.

Nonagriculture workers in component cities will receive PHP 520 a day under the first tranche, which will be hiked to PHP 540 under the second tranche. Those in fourth-, fifth- and sixth-class municipalities will get a PHP 420 daily wage by end-September and PHP 450 by April 2025.

For agriculture workers, the daily minimum wage will be PHP 500 for those in the extended metropolitan area and component cities and PHP 425 for those in the second- to sixth-class municipalities.

Meanwhile, workers in the agriculture sector in first-class municipalities will be paid PHP 465 daily under the first tranche of the hike and PHP 500 under the second tranche.

Lastly, the daily wage rate for retail and service establishments employing not more than 10 workers will be PHP 425.

Meanwhile, daily minimum wage rates in Central Visayas are based on area and are the same for both the agriculture and non-agriculture sectors.

All workers in the class A geographical area or Expanded Metro Cebu — composed of the cities of Carcar, Cebu, Danao, Lapu-Lapu, Mandaue, Naga and Talisay and the municipalities of Compostela, Consolacion, Cordova, Liloan, Minglanilla and San Fernando — will now receive PHP 501 daily under the new wage order.

Those in class B or the cities of Bais, Bayawan, Bogo, Canlaon, Dumaguete, Guihulngan, Tagbilaran, Tanjay, and Toledo will see their daily wage rise to PHP 463.

Lastly, those in class C areas, or the municipalities not covered under classes A and B, will be paid PHP 453 a day.

INFLATION IMPACT UNLIKELY

University of the Philippines Diliman School of Labor and Industrial Relations Assistant Professor Benjamin B. Velasco said the increases in daily minimum wages in the two regions are unlikely to spur inflation.

“The wage orders provide for a ‘modest’ increase in minimum wages. Numerous global studies reveal that moderate wage increases have little to no impact on employment and prices (i.e., not inflationary and do not lead to layoffs),” Mr. Velasco said in a Facebook Messenger chat.

He said the increase could provide relief to workers amid rising prices but reiterated the call of various groups for a legislated wage hike, specifically for a PHP 150 “wage recovery” to “recover lost purchasing power due to inflation.”

The Senate earlier this year passed a bill granting a PHP 100 wage hike, but the House of Representatives has yet to pass a similar measure. Proposals ranging from PHP 100 to PHP 750 remain pending at the House.

Employers Confederation of the Philippines Governor Arturo “Butch” C. Guerrero III said that while some of their members expressed concerns about the new wage orders for the two regions, they prefer RTWPB-mandated wage hikes over legislated increases.

“We want the regional wage board to decide on the increase rather than a legislated wage increase,” Mr. Guerrero told BusinessWorld in a phone call. “They (politicians) just go ahead and vote at the cost of the business and at the cost of the livelihood of the workers. We don’t want that to happen. We’d prefer [that the wage increases] go through regional wage boards.”

For his part, Bukluran ng Manggagawang Pilipino President Renecio “Luke” S. Espiritu, Jr. said the notion of “provincial” wage rates should be scrapped to allow all workers to earn equally.

“Calabarzon is highly industrialized — it is the “factory hub” of the Philippines. Central Visayas is also highly commercialized, with lots of malls, hotels, and economic zones there,” he said in Filipino through Facebook Messenger. “Both are similar to the National Capital Region — except that the wages are lower there.” – Chloe Mari A. Hufana, Reporter

The National Government’s (NG) debt payments jumped in July as interest payments on local borrowings increased, the Bureau of the Treasury (BTr) said.

The latest BTr data showed that the debt service bill went up 26.13% to PHP 81.17 billion in July from PHP 64.36 billion in the same month a year ago.

Month on month, debt payments also rose by 22.85% from PHP 66.08 billion in June.

The debt service bill refers to payments made by the government on its domestic and foreign borrowings.

Interest payments comprised 97.85% of the debt service bill for the month.

In July, interest payments increased by 24.99% to PHP 79.43 billion from PHP 63.55 billion in the same month in 2023.

Broken down, interest paid on domestic obligations soared by 41.84% to PHP 55.32 billion in July from PHP 39 billion last year.

This consisted of PHP 47.03 billion for fixed-rate Treasury bonds, PHP 3.58 billion for retail Treasury bonds, PHP 2.9 billion for Treasury bills (T-bills), and others (PHP 1.81 billion).

Interest payments made on external debt dipped by 1.78% to PHP 24.11 billion in July from PHP 24.55 billion last year.

On the other hand, principal payments more than doubled to PHP 1.74 billion in July from PHP 808 million a year earlier.

Principal payments on external debt surged by 113.58% to PHP 1.56 billion in July from PHP 729 million in the same month last year.

Amortization on domestic debt soared by 134.18% to PHP 185 million in July from PHP 79 million a year prior.

In the first seven months of the year, NG debt payments jumped 40.28% to PHP 1.36 trillion from PHP 972.29 billion a year ago.

Principal payments accounted for 66.52% of debt servicing as of end-July.

Amortization payments jumped by 44.87% to PHP 907.3 billion during the January-to-July period from PHP 626.28 billion a year ago. Principal payments on domestic debt stood at PHP 757.62 billion, while amortization payments on external debt amounted to PHP 149.68 billion.

In the January-July period, interest payments rose by 31.98% to PHP 456.66 billion from PHP 346 billion last year.

Domestic interest payments as of end-July amounted to PHP 323.36 billion, while external interest payments stood at PHP 133.3 billion.

During the period, interest payments on local borrowings comprised PHP 217.53 billion for fixed-rate Treasury bonds, PHP 78.24 billion for retail Treasury bonds, PHP 18.68 billion for T-bills, and others (PHP 8.91 billion).

“Rising interest rates and maturing obligations are driving up the government’s debt service bill. However, strong revenue collection and external financing are helping to manage the burden,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Elevated interest rates here and abroad continued to drive up interest payments on debt, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“The stronger peso exchange rate recently could reduce the peso equivalent of foreign debt principal and interest payments,” Mr. Ricafort said in a Viber message.

The local unit closed at PHP 55.995 on Friday, 20.5 centavos stronger than its PHP 56.2 finish on Thursday.

A potential rate cut by the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve could help reduce the NG’s interest payments, Mr. Ricafort added.

At its Aug. 15 meeting, the Monetary Board cut the policy rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.5% previously.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board may cut interest rates by another 25 bps in the fourth quarter. Only two meetings are left this year — Oct. 17 and Dec. 19.

For its part, the Fed is widely expected to begin its easing cycle this week.

The National Government (NG) plans to borrow PHP 630 billion from the domestic market in the third quarter. Broken down, it is looking to raise PHP 260 billion from T-bills and PHP 370 billion via T-bonds in the period.

The NG’s debt stock climbed to a record-high PHP 15.69 trillion as of end-July from PHP 15.48 trillion as of end-June.

This year’s debt service program is set at PHP 2.03 trillion, according to the latest Budget of Expenditures and Sources of Financing.

The Bangko Sentral ng Pilipinas (BSP) saw its net income surge in the first half amid higher interest earnings, preliminary data showed.

The central bank’s net profit surged by 330.51% to PHP 85.50 billion in the six months ending June from PHP 19.86 billion a year earlier, according to data posted on its website.

Revenues went up by 56.9% year on year to PHP 164.08 billion from PHP 104.58 billion.

Broken down, interest income made up bulk of the BSP’s revenues during the first semester at PHP 119.76 billion, rising by 28.21% year on year from PHP 93.41 billion.

Miscellaneous income, which includes fees, penalties and other operating income, stood at PHP 44.32 billion at end-June, up by 296.78% from PHP 11.17 billion a year earlier.

On the other hand, the BSP’s expenses declined by 8.9% year on year to P106.13 billion in the first half.

Broken down, other expenses, which include net trading losses, fell by 40.02% to PHP 21.82 billion from PHP 36.38 billion. Meanwhile, interest expenses rose by 5.19% year on year to PHP 84.31 billion as of June.

This brought the central bank’s net income before foreign exchange (FX) gains, tax, and capital reserves to PHP 57.95 billion in the first semester, a turnaround from the PHP 11.94-billion loss it posted in the comparable year-ago period.

Its bottom-line was boosted by a PHP 27.56-billion net FX gain from its foreign currency-denominated transactions in the period.

Meanwhile, separate BSP data showed that its assets went up by 8% to PHP 7.874 trillion at end-June from PHP 7.294 trillion a year ago.

International reserves made up bulk of its assets at PHP 6.13 trillion, up from PHP 5.46 trillion a year prior.

On the other hand, the BSP’s liabilities climbed by 7.6% to PHP 7.667 trillion in the first half from PHP 7.126 trillion.

Currency in circulation stood at PHP 2.31 trillion as of June, while deposits with the central bank were at PHP 2.599 trillion, the data showed.

The central bank’s net worth stood at PHP 207.73 billion as of June, up 24.14% from PHP 167.34 billion a year earlier. — AMCS

The World Bank is confident the Philippine economy will continue to perform well this year and in 2025, as easing interest rates will likely boost domestic consumption.

“We are confident, we’re relatively confident that the economy will continue performing well,” Gonzalo J. Varela, World Bank lead economist and program leader of the equitable growth, finance and institutions practice group for Brunei, Malaysia, the Philippines, and Thailand, told reporters on Tuesday.

The World Bank expects the country to grow by an average of 5.9% from this year until 2026. It projects Philippine GDP growth at 5.8% in 2024.

Economic managers are targeting 6-7% growth this year, and 6.5-7.5% in 2025.

Despite the impact of recent typhoons, Mr. Varela said he sees “some persistence in high economic activity” and expects a strong economic performance in the third quarter.

“On the one hand, you have expectations of the BSP (Bangko Sentral ng Pilipinas) loosening monetary policy, and that will stimulate consumption and investment, at the same time, you have a global economy that is going to be more difficult to navigate,” he said.

The BSP began its easing cycle on Aug. 15 with a 25-basis-point (bp) cut, bringing the policy rate to 6.25%.

Mr. Varela said the BSP’s next rate cut will depend not just on easing inflation but also on the US Federal Reserve.

“It will depend on what happens with the Fed in the next couple of weeks. So if the Fed decreases interest rates, as we are expecting for the next 12 months, or large reductions in interest rates, I think that will give space for BSP to loosen monetary policy,” he said.

The Federal Reserve is now widely expected to undertake a smaller 25-bp interest rate cut at its meeting next week.

BSP Governor Eli M. Remolona, Jr. has previously said they could cut rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are scheduled for Oct. 17 and Dec. 19.

GLOBAL SLOWDOWN

However, a slowdown in the global economy could impact the Philippines’ growth trajectory.

“We also need to keep in mind that we’re in a world in which growth is slower. So global growth being slower, you know, the Philippines cannot escape gravity,” Mr. Varela said.

The World Bank forecasts a 2.6% GDP growth for the global economy this year, and 2.7% expansion in 2025 and 2026.

“The Philippine economy, like many others, is vulnerable to global economic downturns. A slowdown in the global market can lead to decreased exports, lower remittances from Filipinos working abroad, and higher borrowing costs,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

To temper the impact of a global slowdown, Mr. Roces said rate cuts by the BSP would “stimulate domestic demand and stabilize the peso.”

“However, effectiveness will always depend on the severity of the global slowdown amidst the strength of the Philippine domestic economy, and the coordination of monetary and fiscal policies,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said in a Viber message that lower interest rates would spur loan demand, leading to a pickup in GDP growth, investments, employment, trade, and other business activities.

In a separate Viber message, Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said the global slowdown is not expected to have a significant drag on the Philippines’ economy due to the midterm elections in May 2025.

Historically, the economy gets a boost from increased spending during election years.

FINANCING PROJECTS

Meanwhile, Mr. Varela said the World Bank will continue to provide financing for projects in the Philippines even as it becomes an upper middle-income economy.

“We expect the program to keep growing… We expect to keep supporting the Philippines in that respect. The transition to upper middle-income branch status, in terms of cost of financing, what we need to keep in mind is that interest rates are expected to decline globally and that will also impact the cost of financing that the World Bank can offer,” he said.

According to the World Bank’s latest income classification data, the Philippines remained a lower middle-income country with a gross national income (GNI) per capita of USD 4,230 in 2023, higher than USD 3,950 in 2022.

The Marcos administration is aiming to achieve upper middle-income status for the country by 2025.

To become an upper middle-income country, the Philippines now needs to have an estimated gross national income (GNI) per capita of USD 4,516 to USD 14,005. This is higher than the previous range of USD 4,466 to USD 13,845.

Mr. Varela also said the World Bank is working with its partners to reduce the cost of financing by blending grants with loans, especially for climate change mitigation or adaptation projects.

“The Philippines is in the ‘ring of fire’ of typhoons. It’s the number one country most affected by natural disasters globally. So, investing in resilient infrastructure is crucial,” he added.

Meanwhile, Mr. Varela said that the World Bank’s Country Partnership Framework for 2025 to 2028 is expected to be approved early next year.

Under the new framework, World Bank loans would be focused on increasing firms’ and farms’ productivity, bolster a competitive business environment, ensure inclusive finance, improve health and nutrition.

The World Bank also aims to help enhance education quality and skills, improve resilience to shocks and climate change, and provide better services to conflict-affected and underserved areas, and help in the country’s transition to a greener economy.

The World Bank is also expected to approve the Philippine Second Digital Transformation development policy loan (DPL) and Digital Infrastructure Project around October to November, Mr. Varela said.

The government is seeking a USD 750-million loan for the Second Digital Transformation DPL, which aims to fast-track the countryside adaptation of digital technologies. It also seeks a USD 287.24-million loan for the Digital Infrastructure Project, which seeks to improve broadband connectivity in the country. — Aaron Michael C. Sy