By means of Luisa Maria Jacinta C. Jocson, Reporter
PHILIPPINE ECONOMIC GROWTH could fall below 6% in 2025 due to a “soft” recovery in domestic demand and expectations of a widening trade deficit, Bank of America (BofA) said.
BofA Securities Philippines economist Jojo Gonzales expects the Philippine gross domestic product (GDP) to grow 5.9% in 2025.
This would narrowly miss the government’s revised growth target of 6 to 8% for next year.
The economy grew at a slower-than-expected 5.2% in the third quarter, the weakest growth in five quarters.
Over the nine-month period, GDP growth averaged 5.8%, slower than the 6% a year ago.
Earlier this month, the Development Budget Coordination Committee adjusted its economic growth targets to take into account “evolving domestic and global uncertainties.”
“While we expect a soft recovery in private consumption and investment in the coming year, government spending growth is likely to be subdued and a widening net trade deficit is expected,” Mr. Gonzales said. Business world in an email.
In the third quarter, government expenditure growth slowed to 5%, compared to 11.9% in the previous quarter.
The latest data from the Philippine Statistics Authority (PSA) shows that the country’s trade deficit widened to $5.8 billion in October, the largest deficit in more than two years.
Meanwhile, the BofA said it expects inflation to average 3% next year, well within the central bank’s target of 2-4%.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.3% in 2025. The central bank said risks to next year’s inflation outlook are still tilted to the upside.
According to the latest data from the PSA, headline inflation averaged 3.2% over the eleven-month period.
“A weaker peso remains a risk to this forecast, although softer oil prices will likely provide a cushion to offset the impact of the weaker currency,” Mr. Gonzales said.
BofA expects the dollar’s strength to continue next year, with the peso possibly breaching the P61 mark.
“The US dollar will remain stronger in 2025, and our forecast for the end of 2025 is P61,” Mr Gonzales said.
So far this year, the peso has hit a record low of P59 per dollar three times.
BSP Governor Eli M. Remolona Jr. previously said they are keeping a close eye on the peso and have been a little more active in the markets than normal.
The BSP has had to intervene with small amounts in recent months due to the stronger dollar after Donald J. Trump emerged victorious as US president.
Meanwhile, BofA estimates that the central bank will implement up to 75 basis points (bps) of interest rate cuts next year.
“This will reduce the policy rate to 5% (by the end of 2025),” Mr. Gonzales said.
Last week, in its final policy review of the year, the Monetary Board cut borrowing costs by 25 basis points, bringing the policy rate to 5.75%.
The central bank has cut rates by a total of 75 basis points this year since the easing cycle began in August.
Mr Remolona previously said that implementing rate cuts worth 100 basis points next year could be “too much”.
The central bank is likely to continue cutting rates in “baby steps” as it continues to closely monitor upside risks to inflation, the BSP chief added.
“We also expect the Fed rate to settle at 4% – one cut in December and two cuts in the first half of 2025,” Mr. Gonzales added.
The Fed continued its cuts in December after a period of aggressive rate hikes, but announced fewer cuts in 2025. Investors are now focused on how gradually the US central bank would cut interest rates next year, Reuters reported.
While favorable US inflation on Friday allayed some concerns about the pace of cuts next year, markets are still pricing in an easing of around 35 basis points through 2025.
US investors are preparing for a slew of changes in 2025 – from tariffs and deregulation to tax policy – that will ripple through the markets when Trump returns to the White House in January.