Philippines growth seen at 6% this year

MANILA, Philippines — Global banking giant Citi and research firm BMI Country Risk & Industry Research see the Philippine economy expanding by six percent this year, following the release of the gross domestic product (GDP) growth data for the second quarter.

In a report, Citi economist for the Philippines Nalin Chutchotitham said the bank raised its GDP growth forecast to six percent from 5.9 percent previously due to the stronger-than-expected GDP outturn in the second quarter.

“While household consumption is likely to only gradually recover, there are supporting factors such as strong employment, as well as the expected lower inflation and interest rates in the coming months,” she said.

The economy posted a faster growth rate of 6.3 percent in the second quarter. This was faster than the 4.3 percent expansion in the second quarter last year and the revised 5.8 percent growth in the first quarter of 2024.

According to Chutchotitham, growth was moderately strong in the first half after averaging six percent. This marked an improvement from 2023, but it fell below the 2010-2019 average of 6.4 percent.

She noted that household consumption remained subdued in the second quarter despite the strong headline print. At 4.6 percent, household consumption was the weakest since the first quarter of 2021 and contributed 3.2 percentage points to overall GDP.

Citi also kept its six percent growth forecast for 2025.

However, Chutchotitham said rising external headwinds from the economic slowdown of several advanced economies such as the US could drag down expansion, as these economies are the Philippines’ key trading partners and sources of remittances.

On the other hand, BMI has trimmed its full-year GDP growth forecast to six percent from 6.2 percent previously after overestimating the health of the Philippine economy.

“To reach our previous 6.2 percent growth projection for 2024, the economy must expand by around 6.4 percent in the second half, which we think is unlikely,” the research firm said.

“The 6.3 percent growth outturn in the second quarter paints a misleading picture of the economy’s health, as this number was flattered by a favorable base of comparison. Output grew by just 4.3 percent in the second quarter of 2023,” it said.

BMI noted that on a quarterly basis, GDP grew by 0.5 percent, its softest pace since the second quarter of 2023. The slowdown stemmed from a lagging external sector as exports contributed just 1.2 percentage points to overall growth from 2.4 percentage points a quarter ago.

“Against the backdrop of a slowing global economy in the second half, external demand will prove even less supportive over the coming quarters,” BMI said.

Rate cuts from the Bangko Sentral ng Pilipinas (BSP) could provide further support to domestic activity.

Citi expects the BSP to cut 25 basis points on Thursday and 25 basis points each in October and December. It also sees 75 basis points of total rate cuts in 2025.

Chutchotitham said there is a small chance that the BSP may err on the cautious side and stand pat in August, given July’s inflation print at 4.4 percent amid volatile food and energy prices.

“However, note that the BSP deemed in June that inflation is on its way down and that the output gap is expected to remain negative throughout the policy horizon. Hence, demand-pull inflationary pressures are expected to remain limited,” she said.

At its meeting last June, the BSP’s Monetary Board kept the benchmark interest rate at a 17-year high of 6.50 percent. This was after it hiked aggressively by 450 basis points from May 2022 to October 2023.

“While household consumption is likely to only gradually recover, there are supporting factors such as strong employment, as well as the expected lower inflation and interest rates in the coming months.”