PHL likely to grow by 6% this year

Philippine gross domestic product (GDP) growth is expected to average 6% this year, at the low end of the government’s 6-7% target, according to analysts. 

Fitch Solutions’ unit BMI lowered its Philippine GDP growth forecast to 6% this year from 6.2% previously, after weaker-than-expected second-quarter data.

“The latest growth outturn clearly showed that we have overestimated the health of the Philippine economy,” it said.

The Philippine Statistics Authority (PSA) last week reported that GDP expanded by 6.3% in the second quarter, quickening from the revised 5.8% in the first quarter and beating the 6% median estimate in a BusinessWorld poll.

BMI had earlier projected 6.5% GDP growth for the second quarter.

For the first half of the year, GDP growth averaged 6%. In order to meet the low end of the government’s 6-7% target, the economy would need to expand by at least 6% in the second semester.

“To reach our previous 6.2% growth projection for 2024, the economy must expand by around 6.4% in the second half, which we think is unlikely,” BMI said.

BMI said that the Philippines’ second-quarter growth print “paints a misleading picture of the economy’s health.”

“Reinforcing our view, the 0.5% quarter-on-quarter expansion recorded was the softest pace since the second quarter of 2023. Much of this weakness stemmed from a poor performance in the external sector, as we had expected,” it said.

On a seasonally adjusted quarter-on-quarter basis, GDP grew by just 0.5%, slower than the 1.1% in the first quarter.

“Indeed, exports contributed just 1.2 percentage points (ppts) to headline growth, halving the strong 2.4-ppt contribution in the prior quarter. Along with a strong pickup in imports, net exports detracted 0.8 ppt from the headline figure,” it added.

PSA data showed that exports of goods and services grew by 4.2% in the second quarter, much slower than the 8.4% growth a quarter ago.

“Against the backdrop of a slowing global economy in the second half, external demand will prove even less supportive over the coming quarters,” it added.

Despite this, BMI noted that domestic demand continues to hold up “pretty well.”

Growth in household consumption slowed to 4.6% from 5.5% a year ago. Private consumption accounts for about three-fourths of the economy.

“Despite a dip in private consumption contribution from 3.4 ppts in the first quarter to 3.2 ppts in the second quarter, the rebound in investment activity more than made up for it,” it said.

Gross capital formation or the investment component of the economy grew by 11.5% in the second quarter, faster than the 0.5% growth in the previous quarter and 0.7% a year ago.

“Contribution from gross fixed capital formation jumped from 0.5 ppt to 2.5 ppts, the highest level in almost two years. We expect imminent rate cuts by the Bangko Sentral ng Pilipinas (BSP) to provide a further lift to domestic activity,” it said.

CITI OUTLOOK

On the other hand, Citigroup, Inc. raised its GDP growth projection to 6% this year from 5.9% previously due to expectations of improving economic conditions.

“While household consumption is likely to only gradually recover, there are supporting factors such as strong employment, as well as the expected lower inflation and interest rates in the coming months,” Citi economist for the Philippines Nalin Chutchotitham said in a report.

Inflation is also seen to continue to ease after the spike in July. “We also agree with the BSP that inflation is projected to decline from August onwards,” it said.

Headline inflation rose to 4.4% in July from 3.7% in June, its fastest pace in nine months.

In the first seven months of the year, headline inflation averaged 3.7%. The BSP expects inflation to average 3.3% this year.

For 2025, Citi sees growth steady at 6%. This would be below the 6.5-7.5% government target.

“We maintain our expectation of 2025 growth at 6%, noting increasing external headwinds from the slowdown in several advanced economies (especially the US), which are the Philippines’ key trading partners and sources of overseas workers’ remittances,” Ms. Chutchotitham said.

EASING TO START

Meanwhile, Citi said that it expects the BSP to commence its easing cycle at its meeting on Thursday.

“We continue to expect a 25-bp rate cut starting at the Aug. 15 policy meeting despite a temporarily high inflation print in July,” Ms. Chutchotitham said.

Citi also expects the Monetary Board to cut rates by 25 bps at its October and December meetings, for a total of 75 bps for the full-year 2024.

“The BSP may, with some small probability, err on the cautious side and stand pat in August, given July’s inflation print at 4.4% year on year amid volatile food and energy prices,” Ms. Chutchotitham said.

A BusinessWorld poll conducted last week showed that nine out of 16 analysts surveyed expect the Monetary Board to deliver a 25-bp rate cut at Thursday’s review. This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the coronavirus pandemic.

BSP Governor Eli M. Remolona, Jr. last week said they may be “a little bit less likely” to cut rates at its upcoming meeting amid the uptick in July inflation.

At the same time, ING Bank N.V. Research Head and Chief Economist for Asia and the Pacific Robert Carnell said he now expects the BSP to keep rates on hold on Thursday due to recent market volatility.

“Were it me… I probably would leave it this month and wait until the market’s a little calmer,” he said at a briefing on Monday. “The thing that I think makes it more of a coin toss is the volatility of the market backdrop. We have been through a really, pretty hectic and volatile couple of weeks.”

Stronger-than-expected GDP data in the second quarter and July inflation also don’t support the August rate cut, Mr. Carnell said.

“The GDP numbers could have supported that had they been weaker… Having said that, the inflation numbers made it slightly less likely that they’d be easing in August,” he said.

Mr. Carnell also noted that the BSP should wait for other central banks to cut rates first to see how the market reacts.

He expects the Fed to cut by 100 bps this year — a 50-bp cut in September, a 25-bp cut in November and another 25-bp cut in December.

“I just think the optics will look a little bit better in a month’s time, and there’ll also be that sort of safety in numbers at that stage, because we will have the Fed easing by then,” he said.

Aside from its scheduled policy meetings, Mr. Carnell also said that the BSP could still implement an off-cycle rate cut, but this move carries the risk of unnecessarily alarming the market.

Mr. Remolona earlier said that they are “always open” to off-cycle rate cuts.

After its August policy meeting, the BSP only has two meetings in the fourth quarter — Oct. 17 and Dec. 19. — Luisa Maria Jacinta C. Jocson, Reporter, with Aaron Michael C. Sy