The Philippines’ gross domestic product (GDP) is likely to grow slower than that of the government target through 2025, according to Citigroup, Inc. (Citi).
Citi cut its GDP growth forecast for the Philippines to 5.8% this year, but maintained its 6% growth forecast for 2025.
This is below the government’s target of 6-7% this year and 6.5-7.5% next year.
“We have slightly reduced GDP growth for 2024 to 5.8% from 6%, mainly due to a weak third quarter performance driven by several temporary weather-related factors,” said Citi economist Nalin Chutchotitham for Thailand and the Philippines. report.
The Philippine economy slowed to 5.2% in the July-September period from 6.4% in the second quarter and 6% a year ago.
This was also the weakest growth since the 4.3% growth in the second quarter of last year.
“Nevertheless, we think it would be misleading to view the weaker growth in the third quarter as the start of a slowdown, as several negative factors in the third quarter are one-off events,” Ms Chutchotitham said.
She said the weakness in economic growth in the third quarter mainly stemmed from the decline in agricultural production, construction activity and net exports.
Despite the weak third quarter, Citi expects growth to accelerate in the fourth quarter as domestic demand is expected to pick up relaxFand lower rates.
“We expect GDP growth to accelerate to 6% annualized in the fourth quarter of 2024. Household consumption is expected to continue to improve, supported by lower interest rates and improved consumer confidenceFThe situation continues to stabilize.”
In the FIn the first nine months, GDP grew by 5.8%. The economy would need to grow by at least 6.5% in the fourth quarter to meet the lower end of the government’s target of 6-7%.
“With the storm season soon to be over, we also expect progress on infrastructure projects to accelerate in the fourth quarter Ffirst quarter of 2025,” Ms Chutchotham said.
Domestic demand is also likely to be supported by improving employment conditions, growth in remittances and bank lending.
“The reduction in the RRR (reserve requirement ratio) by 250 basis points (bps), eFIts entry into force on October 25 would also release more liquidity into the banking system and is likely to continue to support strong credit expansion,” Ms Chutchotitham added.
The central bank last month cut the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions by 250 basis points to 7%.
“We also maintain our expectation of 6% growth in 2025, but see some upside risks from the tailwinds of further rate cuts,” Citi said.
According to Citi, the Bangko Sentral ng Pilipinas (BSP) is likely to decline by 25 basis points in December and a total of 75 basis points next year.
This year, the central bank has cut interest rates by 50 basis points since August. The Monetary Board will hold its last rate-setting meeting of the year on December 19.
BSP Governor Eli M. Remolona Jr. has said it is possible to implement a 25 basis point interest rate cut by then. This could bring the benchmark interest rate to 5.75% at the end of 2024.
“Looking ahead, the recent enactment of the CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) bill should help reduce costs for businesses through lower corporate taxes, greater electricity cost deductions and simpler local taxes. and VAT regulations,” Ms Chutchotham said.
Last week, President Ferdinand R. Marcos Jr. signed the CREATE MORE bill.
The law expands tax incentives and reduces corporate taxes for certain foreign companies.
“In response to the post-pandemic world, the CREATE MORE Act allows this Fcompanies in special economic zones to implement flexible/hybrid work arrangements while continuing to enjoy their other incentives,” she added. — Luisa Maria Jacinta C. Jocson