Philippine economy: Moderate growth amid weakening domestic demand

The nation’s economy continues to face challenges that could shape the future of over 100 million Filipinos.

While headline growth figures paint a picture of resilience, a closer look reveals that certain factors may hinder growth in the coming months, affecting everyone.

The main update for Philippines’ economy in July is that its GDP grew by 5.7% year-on-year (YoY) in the first quarter of 2024, faster than the previous period given robust semiconductor exports but slightly below consensus due to challenges in overall sentiment.

Looking ahead, stable growth is expected as global trade demand remains resilient. However, challenges remain as monetary policy continues to be tight. Given this, private domestic demand will likely only show moderate improvement in the next few quarters.

Inflation to breach BSP’s 2-4% target before settling lower

Despite inflation remaining with the target range of the Bangko Sentral ng Pilipinas (BSP), it is still on an upward trajectory amid elevated rice, electricity, and transport prices.

Another Philippine economic update is that inflation can exceed the target range until July 2024 before moderating as lower rice tariffs take effect. Hence, spotlight may shift towards the challenges posed by elevated commodity prices and peso depreciation.

Rate cuts expected in 4Q24, totaling 50bps for the year

While the BSP is now less hawkish than before, monetary easing may only materialize in the fourth quarter of 2024 once inflation settles back within the central bank’s target range.

Despite recent pronouncements from BSP Governor Eli Remolona Jr. suggesting potential monetary easing by August, the central bank will likely wait for the U.S. Federal Reserve (Fed) to implement rate cuts in order to prevent further local currency weakness.

Peso appreciation only expected at the latter part of the year

The peso continued to weaken, with the USDPHP recently peaking at 58.92 intraday high amid continued US dollar strength.

With the pushback in rate cuts and the start of imports season, peso appreciation is deferred until later this year, with the Fed likely cutting rates ahead of the BSP. Other factors that can mitigate peso weakness include improving trade deficit, stable foreign exchange reserves, along with higher remittances from Overseas Filipinos and Business Process Outsourcing (BPO) revenues.

Overall, as the Philippines navigates these economic challenges, the country’s resilience and adaptability give us reasons to be optimistic.

The government and central bank’s measured responses to these complex dynamics in the economy will be crucial in maintaining stability and fostering growth in the coming months.

For more information from the Metrobank Trust Banking Group on other economies such as the US, Europe, China, and Japan, see our full report
here.

(Bookmark and visit Metrobank Wealth Insights at www.wealthinsights.ph daily for investment insights and ideas. If you are a Metrobank client, please get in touch with your relationship manager or investment specialist for assistance in accessing exclusive content. Not a client yet? Please sign up here so you can begin your wealth journey with us.)

ANNA DOMINIQUE CUDIA, MBA, CSS, is the Head of Markets Research at Metrobank’s Trust Banking Group, spearheading the generation and presentation of financial markets insights to internal and external clients. She used to be with Metrobank’s Investor Relations, where she brought in international awards and took part in various multi-billion peso and dollar capital raising activities. She holds a Master of Business Administration (Finance) degree, with distinction, from the University of London, and industry certifications in finance. She is a naturally curious person and likes to travel here and abroad.

SOPHIA THERESE “PIA” BONIFACIO is a Markets Research Analyst at Metrobank’s Trust Banking Group, covering local and offshore macroeconomic research. She obtained her Bachelor’s degree in Economics with a Specialization in Financial Economics, cum laude, from the Ateneo de Manila University and is a Certified UITF Sales Person (CUSP). Pia enjoys long road trips and is a self-proclaimed milk tea connoisseur.

DOMINIQUE “NICA” RAVELAS is a Markets Research Analyst at Metrobank’s Trust Banking Group, specializing in offshore macroeconomic research. Formerly a sales trader under Luzon International Sales Desk. She holds a bachelor’s degree in business administration major in Financial Management from Far Eastern University-Makati where she was awarded as one of the Top Outstanding Senior Students (TOSS). She is also a Certified UITF Sales Person (CUSP). Beyond her academic and professional pursuits, Nica enjoys shopping, travelling, and watching sunsets by the beach.