Fitch sees Philippine economy growing by 6.4% in 2024

MANILA, Philippines — Global credit watcher Fitch Ratings expects the Philippine economy to grow by 6.4 percent in 2024, suggesting a faster pace of recovery from 2023, with the central bank likely done with its tightening cycle.

However, the 2024 forecast is still below the government’s 6.5 to 7.5 percent target this year.

“We expect output growth to accelerate to 6.4 percent in 2024, reflecting base effects from a weaker 2023 and our assessment that policy rates have peaked. Consumer confidence has been weakening, but business confidence has recovered strongly,” Fitch Ratings said.

The Philippine economy posted a gross domestic product growth of 5.6 percent last year, lower than the 7.6 percent expansion in 2022. Excluding the contraction during the pandemic, the 2023 GDP marked the lowest since 2011.

Last year’s GDP growth also fell short of the six to seven percent growth the government was aiming for. Still, the Philippines was one of the fastest-growing economies in the region.

According to Fitch, downside risks include a slower-than-expected global growth or if inflation stubbornly picks up again this year, which could force the Bangko Sentral ng Pilipinas (BSP) to keep rates higher for longer.

Inflation quickened to a two-month high of 3.4 percent in February from 2.8 percent in January. Still, it marked the third straight month that inflation settled between the target range.

This year, inflation may slow to four percent before easing further to 3.5 percent in 2025, Fitch Ratings said. Both forecasts are at the upper end of the BSP’s two to four percent target range.

However, the range of potential inflation outcomes is still skewed toward the upside amid uncertainties in prices, supply-side pressures and adjustments to minimum wages and transport fares.

“We believe the Philippines’ policy rate has peaked,” Fitch said. “We forecast the policy rate to decline to 4.5 percent by end-2025. This implies a widening policy rate differential between the Philippines and the US from 0.75 percent percent currently, the narrowest it has been since 2007.”

To tame inflation and stabilize the peso, the BSP has raised the key interest rate by 450 basis points to 6.50 percent, the highest in nearly 17 years. The Monetary Board has been keeping rates steady since its last 25-basis-point off-cycle increase on Oct. 26, 2023.

Meanwhile, the Philippine economy could grow by 6.5 percent next year and continue to post a GDP growth of above six percent over the medium term. The forecast is within the government’s 6.5 to eight percent target.

The debt watcher also sees the country’s current account deficit narrowing by -2.5 percent of GDP in 2024 and -1.8 percent in 2025. The current account deficit is estimated at -2.9 percent of GDP in 2023.

In November 2023, Fitch Ratings affirmed the Philippines’ long-term foreign currency issuer default rating at “BBB,” a notch above the minimum investment grade.

It also maintained its “stable” outlook, citing the economy’s strong medium-term growth prospects.