S&P trims Philippines growth forecasts for 2024, 2025

MANILA, Philippines — S&P Global Ratings has lowered its gross domestic product (GDP) forecasts for the next two years due to “disappointing” domestic demand in the first quarter of the year.

In a report, the debt watcher said the Philippine economy might expand to 5.8 percent this year, lower than the 5.9 percent it gave in March. The forecast is also below the government’s six to seven percent target for 2024.

For 2025, S&P slashed its GDP forecast to 6.1 percent from 6.2 percent previously, also falling short of the government’s 6.5 to 7.5 percent target.

“Domestic demand started out the year on a disappointing note, at least in part due to the high level of interest rates,” S&P senior economist Vincent Conti told The STAR in an email.

Based on data from the Philippine Statistics Authority, the economy expanded by just 5.7 percent in the first quarter. This is slower than 6.4 percent in the same period a year ago but higher than 5.5 percent a quarter prior.

On the demand side, household spending only grew by 4.6 percent in the first quarter this year, slower than the 6.4 percent in the same quarter in 2023 and the previous quarter’s 5.3 percent.

The first quarter household spending growth rate marked the slowest since the 2.6 percent in the third quarter of 2010, excluding the pandemic years.

According to Conti, borrowing costs may remain higher for longer in the Philippines this year, which would continue to drag down consumer spending.

“With the US Federal Reserve staying higher for longer than initially expected, so will the Bangko Sentral ng Pilipinas (BSP). This will continue to pose headwinds for a full recovery in domestic demand,” he said.

“Nonetheless, there are favorable base effects in exports that, combined with relatively slower imports due to domestic demand, will provide growth support in the interim,” Conti added.

The BSP hiked interest rates aggressively by 450 basis points from May 2022 to October 2023, bringing the benchmark rate to 6.50 percent, the highest in 17 years.

The central bank’s Monetary Board is widely expected to keep policy rates steady on Thursday to mitigate any possible inflationary pressures and to support the peso.

However, BSP Governor Eli Remolona, Jr. earlier said the Monetary Board could cut borrowing costs by 25 basis points as early as August, possibly ahead of the US Fed, depending on the inflation path.

S&P Global Ratings expects inflation to average 3.4 percent in the Philippines this year. This is significantly lower than the six percent full-year average in 2023.

Inflation could further slow down to 3.1 percent in 2025 before hitting three percent in both 2026 and 2027.

This would give room for the BSP to cut the key interest rate by 25 basis points to 6.25 percent this year, 125 basis points to five percent in 2025 and 100 basis points to four percent in 2026.