Slowing Philippine growth may continue next year

Philippine economic growth could weaken further next year, falling short of the government’s target amid an incomplete post-coronavirus disease 2019 (COVID-19) fiscal consolidation and still high interest rates, analysts said.

Pantheon Macroeconomics in its Emerging Asia Outlook report said it expects a “continued slowdown” in growth next year. It expects the economy to grow 5.4% this year and slow to 5.2% in 2025.

These are both well below the government’s 6-6.5% and 6-8% targets for 2024 and 2025, respectively.

The Philippine economy grew 5.2% in the third quarter, weaker-than-expected and the slowest in five quarters.

“Surveys show that a slowing rebuild of household savings in the Philippines from COVID and a cost-of-living crisis damage cushioned the slump in consumption growth this year, albeit at the likely expense of delaying a real recovery in GDP (gross domestic product) growth,” Pantheon said.

It added that the country’s economic output would “remain hampered by incomplete post-COVID fiscal consolidation and historically tight monetary policy.”

ANZ Research in its latest quarterly report said it expects economic growth to slow to 5.6% in 2025 from 5.7% this year. It said its outlook for 2025 is “downbeat, complicated by the lack of domestic growth catalysts amid fading exports.”

Consumer confidence has remained static and below pre-pandemic levels in most economies in Asia, it pointed out.

“Consumer surveys in both Indonesia and the Philippines suggest a fall in household savings over the last few years.”

The Institute of International Finance said it expects Philippine growth to average 5.8% this year and in 2025.

“Countries that are more reliant on dollar financing such as Malaysia, Korea and the Philippines are likely to face increased pressure from a strong US dollar and ‘higher-for-longer’ US Fed Funds policy rate,” it said.

The peso sank to the P59-a-dollar level twice last month, hitting a record low on Nov. 21 and Nov. 26.

“The Philippines, in particular, stands out due to its higher external financing needs, given its larger twin current account and fiscal deficits,” the institute said.

Meanwhile, both Pantheon and ANZ expect inflation to settle at 3.2% this year, compared with the Bangko Sentral ng Pilipinas’ (BSP) 3.1% estimate.

The central bank is also expected to continue its rate-cutting cycle next year. ANZ expects the policy rate to end at 5.75% this year and 5% by end-2025.

“Real rates are likely to stay elevated in Indonesia, South Korea and the Philippines where 50-to-100-basis-point (bp) rate cuts are likely in 2025,” it said.

“The efficacy of rate cuts in Indonesia and the Philippines will be limited by the need to rebuild household savings,” it added.

Pantheon also expects the key rate to end at 5.75% this year but sees it falling further to 4.75% by the end of next year.

The Philippine central bank started its easing cycle in August with a 25-bp rate cut. It delivered another 25-bp cut in October, bringing the key rate to 6%.

The Monetary Board will hold its final policy review of the year on Dec. 19.

BSP Governor Eli M. Remolona, Jr. earlier signaled the possibility of another 25-bp cut at the meeting. – Luisa Maria Jacinta C. Jocson, Reporter