By means of Luisa Maria Jacinta C. Jocson, Reporter
The Philippine economy is expected to continue to accelerate but still fall short of the government’s targets this year and in 2025, according to a report by Fitch Ratings.
Fitch also noted that political tensions among the country’s top officials, as well as the policies of the new Trump administration, could pose risks to the country’s growth prospects.
“GDP (gross domestic product) growth has slowed since the post-COVID-19 (coronavirus disease 2019) pandemic rebound in activity, but Fitch Ratings expects the economy to grow by 5.7% in 2024,” it said report.
Fitch also expects GDP to grow 5.9% in 2025.
Both forecasts are below the government’s targets of 6-6.5% and 6-8% for this year and in 2025 respectively.
“We expect growth to pick up to 6.2% by 2026, thanks to monetary easing, infrastructure spending and reforms to boost trade and investment,” it added.
This projection would be at the lower end of the government’s growth target of 6 to 8% for 2026.
Fitch also flagged risks arising from the rift between President Ferdinand R. Marcos Jr. and Vice President Sara Z. Duterte-Carpio.
“Domestic political conflicts, which have escalated in the run-up to the May 2025 midterm elections, could, in our view, continue to weigh on macroeconomic and fiscal performance,” the report said.
Two separate impeachment charges have been filed against Ms. Duterte-Carpio, alleging betrayal of public trust, bribery and plunder, arising from an ongoing investigation into the use of confidential funds at the Office of the Vice President and at her former cabinet post. , the Ministry of Education.
“Severe public disagreements have erupted between President Marcos and Vice President Sara Duterte and their families,” Fitch said.
“Madam. Duterte is under investigation for threats against the President and misuse of public funds. The support of Mrs. 2022 elections.”
Meanwhile, Fitch noted that new US President Donald J. Trump’s proposed policies could pose risks to the Philippines.
“A further strengthening of the US dollar due to trade protectionism could put pressure on the Philippine peso, which has already depreciated by almost 5% over the eleven-month period, and on Philippine inflation, although weaker global growth and redirection of Chinese exports could compensate for the consequences of the crisis. this to some extent,” the report said.
Last month, the peso fell twice to the level of P59 per dollar.
Fitch said the Philippines would also be vulnerable to changes in U.S. immigration policy, “given the importance of remittances to domestic consumption.”
The US president-elect has proposed introducing stricter border controls as part of his pledge to crack down on illegal immigrants.
The US accounted for 41.2% or the largest share of the Philippines’ total remittances in the 10-month period, BSP data showed.
Meanwhile, the credit rating agency expects inflation to remain manageable, which could allow the BSP to further ease monetary policy.
Overall inflation averaged 3.2% over the eleven-month period. The central bank expects full-year inflation to stabilize at 3.1%.
“We forecast inflation to remain around these levels through 2025-2026, leading to another 100 basis points of rate cuts in 2025,” Fitch said.
A Business world A poll last week showed that 13 out of 16 analysts expect the Monetary Board to cut policy rates by 25 basis points at its last meeting of the year.
If realized, the BSP would have reduced rates by a total of 75 basis points by the end of 2024, bringing the benchmark rate to 5.75%.
“A credible inflation targeting framework and a flexible exchange rate regime contribute to a sound economic policy framework and support the country’s rating.”
In June, Fitch Ratings affirmed the country’s long-term default rating at “BBB” and maintained its “stable” outlook.
DEFICIT, DEBT
Meanwhile, Fitch Ratings forecasts that the central government’s fiscal deficit will stabilize at 5.7% of GDP this year and decline to 4.9% of GDP in 2026.
“Our forecasts are wider than targeted in the government’s budget programme, but still represent an improvement from deficits of 6.2% of GDP in 2023 and a peak of 8.6% in 2021,” Fitch said.
“Our narrower government deficit forecast of 4.4% of GDP for 2024 reflects social security and local government surpluses,” it added.
The latest data from the Ministry of Finance shows that the deficit ratio fell to 5.1% at the end of September, compared to 5.7% a year earlier and 6.2% at the end of last year.
In the meantime, the debt ratio also appears to be falling further.
“Central government gross debt reached 62% of annualized GDP in (the nine-month period), compared to around 60% at the end of 2023.”
“Debt/GDP is likely to decline towards the end of the year as issuance activity declines, as in the past, remaining consistent with our central government debt forecast of 61% of GDP by end 2024.”
Public debt as a percentage of GDP stood at 61.3% at the end of the third quarter. This was higher than the 60.2% a year earlier and the 60.1% at the end of 2023.
The threshold considered manageable by multilateral lenders for developing economies is 60%.
The government aims to bring this below 60% by 2028.