PHL likely to be ASEAN+3’s 2nd fastest-growing economy

The Philippines will likely post the second-fastest growth in the Association of Southeast Asian Nations Plus 3 (ASEAN+3) region this year and in 2025, driven by faster government spending and easing interest rates, according to a regional think tank.

In its October update, the ASEAN+3 Macroeconomic Research Office (AMRO) retained its gross domestic product (GDP) growth forecast for the Philippines at 6.1% this year and 6.3% next year.

“We didn’t change the forecast for the Philippines. As you can see, we expect growth to be at 6.1%, which will be an improvement from last year’s 5.6%,” AMRO Chief Economist Hoe Ee Khor told a virtual briefing on Thursday.

“This is mainly because we expect government investment spending to be higher this year, together with services exports,” he said.

The AMRO’s projection is within the government’s 6-7% target for 2024. However, its 2025 forecast is below the government’s 6.5-7.5% goal.

Mr. Khor said Philippine economic growth remains one of the strongest in the ASEAN+3 region, which includes members of the ASEAN, China, Hong Kong, Japan, and South Korea.

AMRO’s growth forecast for the Philippines is just behind Vietnam (6.2%), and ahead of Cambodia (5.6%), Indonesia (5.1%), China (5%), Malaysia (4.7%), Laos (4.5%), Brunei Darussalam (4%), Hong Kong (3.3%), Thailand (2.8%), South Korea (2.5%), Singapore (2.4%), Myanmar (1.8%) and Japan (0.5%).

Philippine growth is also projected to be above the projected ASEAN+3 average of 4.2% this year. This was slightly lower than the previous forecast of 4.4%.

“Growth for the region will be driven by continued recovery in external trade, resilient domestic demand, and a boost in tourism due to relaxed visa policies in some economies,” AMRO said.

For 2025, the ASEAN+3 region’s growth forecast was upgraded to 4.4% from 4.3% previously, in line with expectations of steady global growth.

“The region is on track to achieve steady growth this year and the next and this will be underpinned by resilient domestic demand and the ongoing recovery in exports,” AMRO Principal Economist Allen Ng told the briefing.

The global demand for artificial intelligence will drive ASEAN+3 exports, AMRO said.

“Leading indicators also suggest sustained demand for a wide range of manufactured goods beyond semiconductors, indicating a broad-based export recovery in the region,” according to the report.

Cost pressures have also eased as global freight rates stabilized, which would help boost regional trade, it added.

For ASEAN, AMRO lowered its growth forecast to 4.7% this year from 4.8% previously. However, it raised its 2025 projection to 4.9% from 4.8% previously.

“Household consumption in most ASEAN economies has remained robust, supported by favorable employment conditions and moderating inflation,” Mr. Ng said.

INFLATION

Meanwhile, AMRO kept its inflation forecast for the Philippines at 3.3% in 2024 and 3.1% in 2025 amid expectations of continued policy easing.

“I think that if it (inflation) continues to trend down, it will provide room for the BSP (Bangko Sentral ng Pilipinas) to cut rates further,” Mr. Khor said.

The central bank began its easing cycle in August by cutting the benchmark rate by 25 bps to 6.25% from the over 17-year high of 6.5%. This was the first time the BSP reduced rates in nearly four years.

AMRO lowered its ASEAN+3 inflation forecast, which excludes Laos and Myanmar, to 1.9% this year from 2.1% previously.

“The moderation in inflation in 2024 reflects the continuing impact of tight monetary policy, softer food prices, and lower imported inflation,” AMRO said.

AMRO kept its inflation forecast for ASEAN+3 (excluding Laos and Myanmar) at 2.3% in 2025.

“Overall, inflationary pressure remains well contained in the region, in line with the baseline expectation of normalization of global inflationary trend,” the think tank added.

For ASEAN, the inflation forecast was cut to 6.1% from 6.3% previously, while its 2025 projection was raised to 4.9% from 4.4% in July.

RISKS

AMRO identified several key risks that could affect the baseline growth forecasts for this year and next year, such as a sharp growth slowdown in the US, Europe, and China and a rise in financial market volatility.

“Looking ahead, uncertainties surrounding US monetary policy trajectories, the upcoming presidential election, and the potential for further unwinding of large financial positions could affect market functioning and amplify financial stresses. This could trigger further disorderly market conditions, impacting the region’s macro-financial stability,” it said.

A spike in global commodity and shipping prices due to weather disturbances and geopolitical conflicts could also hurt the region’s export recovery and stoke inflation, AMRO noted.

“The potential escalation of protectionist policies following the US presidential election is another key risk for the region,” Mr. Khor said.

Former US President Donald Trump, who is known for his populist and protectionist policies, is set to face Vice-President Kamala Harris in the presidential election on Nov. 5.

“Based on AMRO staff estimates, a severe escalation of protectionist measures by the US, such as the implementation of universal tariffs on imports, could lower the region’s growth by almost one percentage point — resulting in the lowest regional growth since the Asian Financial Crisis, with the exception of the pandemic years of 2020 and 2022,” the think tank said.

In the long term, the ASEAN+3 region faces significant challenges arising from aging populations and failure to address climate change.

“The broader trend of geoeconomic fragmentation and continued geopolitical tensions will likely negatively affect the longer-term growth of the region, especially for the trade-dependent economies,” AMRO said.

Mr. Khor said the easing cycle of global central banks, as well as China’s measures to boost its economy, will have favorable spillover effects in the region.

“However, rising external and geopolitical uncertainties underscore the need to continue strengthening resilience and enhancing cooperation in the region,” he added. — B.M.D.Cruz