THE WORLD BANK is confident that the Philippine economy will continue to perform well this year and into 2025 as an easing of interest rates is likely to boost domestic consumption.
“We are confident, we are relatively confident that the economy will continue to perform well,” said Gonzalo J. Varela, World Bank Chief Economist and Program Leader of the Equitable Growth, Finance and Institutions Practice Group for Brunei, Malaysia, the Philippines and Thailand, told reporters Tuesday.
The World Bank expects the country to grow by an average of 5.9% between this year and 2026. She expects Philippine GDP growth to reach 5.8% in 2024.
Economic managers are targeting growth of 6 to 7% this year, and 6.5 to 7.5% in 2025.
Despite the impact of the recent typhoons, Mr Varela said he sees “some persistence in high economic activity” and expects strong economic performance in the third quarter.
“On the one hand, there is an expectation that the BSP (Bangko Sentral ng Pilipinas) will ease monetary policy, and that will stimulate consumption and investment. At the same time, you have a global economy that will be more difficult to navigate. he said.
The BSP started its easing cycle on August 15 with a 25 basis points (bp) cut, bringing the policy rate to 6.25%.
Mr Varela said the BSP’s next rate cut will depend not only on easing inflation, but also on the US Federal Reserve.
“It will depend on what happens with the Fed in the coming weeks. “So if the Fed cuts rates, as we expect over the next 12 months, or major rate cuts, I think this will give room for the BSP to ease monetary policy,” he said.
The Federal Reserve is now widely expected to make a smaller rate cut of 25 bps at its meeting next week.
BSP Governor Eli M. Remolona Jr. has previously said they could cut rates by another 25 basis points within a year. The last two policy-setting meetings of the Monetary Board this year are scheduled for October 17 and December 19.
GLOBAL DELAY
However, a slowdown in the global economy could impact the Philippines’ growth trajectory.
“We must also remember that we are in a world where growth is slower. So as global growth slows, the Philippines cannot escape gravity,” Mr. Varela said.
The World Bank predicts GDP growth of 2.6% for the global economy this year, and 2.7% growth in 2025 and 2026.
“The Philippine economy, like many others, is vulnerable to global economic downturns. A slowdown in the global market could lead to reduced exports, lower remittances from Filipinos working abroad and higher borrowing costs,” said Robert Dan J. Roces, chief economist at Security Bank Corp. in a Viber message.
To dampen the impact of a global slowdown, Mr. Roces said interest rate cuts by the BSP would “stimulate domestic demand and stabilize the peso.”
“However, its effectiveness will always depend on the severity of the global slowdown, amid the strength of the Philippine domestic economy and the coordination of monetary and Fiscal policy,” he added.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., also said in a Viber message that lower interest rates would boost loan demand, leading to a revival in GDP growth, investment, employment, trade and others business activities.
In a separate Viber message, Bank of the Philippine Islands (BPI) chief economist Emilio S. Neri, Jr. said the global slowdown is not expected to have a significant impact on the Philippine economy following the May midterm elections 2025.
Historically, the economy gets a boost from higher spending during election years.
FINANCING PROJECTS
Meanwhile, Mr. Varela said the World Bank will continue to provide financing for projects in the Philippines even as it becomes an upper-middle-income economy.
“We expect the program to continue to grow… We expect to continue to support the Philippines in that regard. What we need to keep in mind as we transition to upper-middle income status in terms of financing costs is that interest rates are expected to fall globally and this will also impact the financing costs that the World Bank can provide. he said.
The Philippines remained a lower-middle-income country, with a gross national income (GNI) per capita of $4,230 in 2023, up from $3,950 in 2022, according to the latest World Bank income classification data.
The Marcos administration aims to achieve upper middle-income status for the country by 2025.
To become an upper-middle-income country, the Philippines must now have an estimated gross national income (GNI) per capita of $4,516 to $14,005. This is higher than the previous range of $4,466 to $13,845.
Mr. Varela also said the World Bank is working with its partners to reduce financing costs by combining grants with loans, especially for climate change mitigation or adaptation projects.
“The Philippines is in the ‘ring of fire’ of typhoons. It is the country most affected by natural disasters worldwide. So investing in resilient infrastructure is crucial,” he added.
Meanwhile, Mr Varela said the World Bank’s Country Partnership Framework for 2025 to 2028 is expected to be approved early next year.
Under the new framework, World Bank lending would focus on increasing business and agricultural productivity, strengthening a competitive business environment, ensuring inclusive financing and improving health and nutrition.
The World Bank also aims to help improve the quality and skills of education, improve resilience to shocks and climate change, provide better services to conflict-affected and disadvantaged areas, and assist in the country’s transition to a greener economy.
The World Bank is also expected to approve the Philippine Second Digital Transformation Development Policy Loan (DPL) and Digital Infrastructure Project around October to November, Mr. Varela said.
The government is seeking a $750 million loan for the Second Digital Transformation DPL, which aims to accelerate the adaptation of digital technologies to rural areas. It also wants a $287.24 million loan for the Digital Infrastructure Project, which aims to improve broadband connectivity in the country. — Aaron Michael C. Sy