The gross amount of the PHILIPPINES isMestic products (GDP) growth is likely to remain below the target range of 6-7% this year, analysts said.
“The economy needs further support. I’m looking forward to it Fiscal tightening and weak export demand should keep growth subdued,” Capital Economics said in a report.
Capital Economics expects GDP growth to average 5.1% this year, well below the government’s target of 6-7%.
For its part, Nomura Global Markets Research said GDP growth will average 5.6% this year.
“We maintain our forecast that GDP growth will improve only marginally to 5.6% annualized in 2024, compared to 5.5% last year, before rising to 6.1% in 2025,” the report said Nomura research analysts Euben Paracuelles and Nabila Amani. .
The Philippine economy grew 6% in the United States Ffirst half. To meet the lower end of the target, GDP growth would need to average 6% for the remainder of the year.
Third quarter economic data will be released on November 7.
Nomura noted that growth in the second quarter was “disappointing and showed weakening growth momentum, led by another successive contraction in private consumption.”
In the second quarter, GDP grew 6.3%, faster than 5.8% a quarter earlier and 4.3% a year ago. However, housekeeping FTotal consumption rose 4.6%, a slowdown from 5.5% last year.
“Public investment spending remains the key driver as the government moves forward with infrastructure projects. The mid-term elections in May 2025 are also likely to provide additional impetus for next year,” Nomura said.
Meanwhile, inflation appears to remain well within the Bangko Sentral ng Pilipinas (BSP) target range of 2-4% this year.
“Inflationary pressures are weak… our forecast is that a combination of weak economic growth and falling food price inflation will keep inflation low,” Capital Economics said.
Nomura expects the headlines to come inFThis year, growth will average 3.1%, lower than the 3.4% forecast by the central bank for the whole year.
“Our forecast assumes headline inflation remains low at around 1.9% in the fourth quarter, partly reFpay attention to the impact of rice import tariffFf cuts,” it added.
Headline inflation fell sharply from 3.3% in August to a four-year low of 1.9% in September. In the Ffirst nine months, inFaverage 3.4%.
“Following BSP’s 25 basis points (bps) cut to 6.25% in mid-August, the further decline in inflation reinforces our view that BSP will continue to cut rates,” the report said.
The Monetary Board is expected to cut the policy rate by 25 basis points this week (October 16).
“We expect another cut of 25 basis points at the scheduled meeting (next) Wednesday,” Capital Economics said.
“We reiterate our forecast that BSP will cut by 25 basis points at each of the last two meetings of the year (i.e. October and December),” Nomura said.
This is in line with a Business world a poll conducted last week showed that 16 out of 19 analysts expect the BSP to cut its target reverse repurchase (RRP) rate by 25 basis points.
If achieved, this would bring the target MSRP to 6%, up from the current 6.25%.
“Looking beyond Wednesday’s meeting, we expect further cuts for the remainder of this year and into 2025. Our forecast that rates will end next year at 4.75% makes us dovish on consensus,” Capital said Economics.
MORE CUTTING IN 2025
Meanwhile, Nomura expects the Monetary Board to cut by 25 basis points at each of its first three meetings next year before pausing.
“This would bring the RRP rate to 5% by May 2025 (i.e. a total of 150 basis points of reductions in this cycle). The Fed’s ongoing austerity cycle also supports BSP’s easing, but we still think BSP is unlikely to be more aggressive at 50bp clips,” the report said.
“The substantial reduction in the RRR (reserve requirement ratio) is already providing additional easing and Governor Remolona said he favors cuts of 25 bps above the policy rate,” it added.
The BSP will reduce the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions by 250 basis points from 9.5% to 7%, effective October 25.
BSP Governor Eli M. Remolona Jr. previously said they plan to reduce the reserve requirement to 0% by the end of his term.
Meanwhile, Nomura said the government will also struggle to meet its budget targets.
“We continue to forecast a fiscal deficit of 5.9% of GDP in 2024, above the revised medium-term fiscal framework objective (MTFF) of 5.6%.”
“We believe it will be challenging to achieve these MTFF targets due to spending priorities such as flagship infrastructure projects,” it added.
In the first eight months of the year, the budget deficit fell by 4.86% to 697 billion euros.
The budget deficit ceiling for this year is set at 5.6% of GDP. The government aims to reduce the deficit ratio to 3.7% of GDP by 2028.
“Spending disbursements tend to accelerate towards the end of the year and revenue growth is likely to slow, in line with more modest GDP growth,” Nomura said.
“The passage of the bill implementing a VAT (value added tax) on imported digital services is encouraging, but will have a small revenue impact of 0.1% of GDP next year. We believe political risks could increase ahead of the midterm elections and become a distraction from implementing larger fiscal reform measures.” — Luisa Maria Jacinta C. Jocson