MANILA, Philippines — Despite the economy slowing down to just 5.2 percent in the third quarter, private consumption may strengthen in the coming quarters due to receding inflation and easing monetary policy of the Bangko Sentral ng Pilipinas (BSP), analysts said.
Philippine Equity Partners Inc. (PEP), the research partner of Bank of America Global Research, said the gross domestic product in the third quarter was worse than expected, bringing GDP growth to an average of 5.8 percent in the first nine months of the year.
“Notwithstanding the soft third-quarter GDP print, we maintain our 2024 GDP estimate of 5.9 percent,” PEP research analyst Jojo Gonzales said in a report.
“We see private consumption growth improving further in the fourth quarter alongside receding inflation, reduced unemployment, improved consumer confidence and a hike in minimum wages that took effect in the third quarter,” he said.
According to Gonzales, the uptick in credit growth is in line with improving consumption and investment.
However, government spending may remain subdued as much of it was concentrated in the first half of 2024. It may hold steady in the fourth quarter if the government aims to stay within its 2024 budget limits.
Bank of the Philippine Islands lead economist Jun Neri likewise said that consumer spending may grow at a faster pace as inflation is expected to stay within the two to four percent target of the BSP in the next 12 months, barring large supply shocks.
“We also see positive prospects for investment spending. Recent data have shown an upward trend in loan growth, indicating a higher appetite for capital expenditures,” Neri said.
“This momentum may be further supported by lower interest rates, which could encourage more investment activity,” he said.
Outstanding loans disbursed by big banks rose for a second straight month to 10.9 percent in August from 10.4 percent in July. Loans amounted to P12.25 trillion in end-August, P1.18 trillion higher than the P11.07 trillion recorded in the same period last year.
Chinabank Research said adverse weather hampering economic activities in construction, travel, agriculture as well as disrupting supply chains are risks to economic growth next year.
“On the bright side, low inflation and the BSP’s monetary easing should provide some tailwind to the economy going forward,” it said.
The Monetary Board delivered another 25-basis-point cut on Oct. 16, bringing the total cuts to 50 basis points since it began its easing cycle in August.
Prior to the cuts, the BSP kept its policy rate steady for six straight meetings since November 2023 to anchor inflation and inflation expectations.
Gonzales said the third-quarter GDP slowdown strengthens the likelihood of another 25-basis-point rate cut from the BSP in December. If realized, this would bring the key rate down to 5.75 percent from the current six percent level.
“However, our expectation of a further 100-basis-point cut in the policy rate in 2025 may be challenged by the fluid conditions in the US that point to a stronger dollar, increased tariffs on trade and more restrictions on immigration – some of which complicate monetary policy,” Gonzales said.
For his part, BPI’s Neri said that while the BSP may use the third-quarter GDP data to justify a rate cut in December, external developments may prevent the central bank from continuing their cutting cycle.
“Uncertainties abroad have intensified following the election victory of US president Trump, causing more volatility in the peso. The BSP may find it more appropriate to keep rates steady if the peso weakens sharply in the coming weeks,” he said.