MANILA, Philippines — The Philippines is expected to receive minimal support from fiscal and monetary policies in 2025 as the government prioritizes post-pandemic debt consolidation, while interest rate cuts remain too modest to significantly stimulate household and business spending, according to ANZ Research.
In a report, ANZ Research said fiscal and monetary policies would offer limited support to overall growth in ASEAN-4 economies (the Philippines, Indonesia, Malaysia and Thailand) this year.
“We believe that fiscal and monetary support to growth in 2025 will be insufficient to overcome the evolving headwinds. Apart from Thailand, the fiscal stance is contractionary in other ASEAN-4 economies, whereas monetary policy will be constricted by a shallow easing cycle,” ANZ said.
According to the research firm, the Philippines is projected to lead ASEAN-4 economies in nominal gross domestic product (GDP) growth in 2025, with a forecasted nine percent.
“The underlying real GDP growth assumption is seven percent, which will be hard to attain given the weakness in private domestic demand and exports. In short, a fiscal policy should be punching harder, but this ingredient is missing in the 2025 budgets,” it said.
ANZ Research said that the fiscal stance, reflected in the 2025 budget, remains conservative, with government spending expected to grow at a slower pace than the nominal GDP.
The Philippines has a budget of P6.326 trillion this year, 9.8 percent higher than the P5.768 trillion budget for 2024.
Meanwhile, the government is targeting a budget deficit of P1.537 trillion this year or 5.3 percent of GDP. The budget deficit is expected to decline from 5.7 percent of GDP in 2024 to 3.7 percent of GDP in 2028.
The Philippines faces further challenges on the monetary front. ANZ said the Bangko Sentral ng Pilipinas is seen delivering a total of 150-basis-point rate cuts from 2024 to 2025.
Of the projected total, 75 basis points have been implemented.
“Overall, this quantum of easing is mild as the terminal policy rate will remain above pre-pandemic levels on both nominal and real basis in most economies,” the research firm said.
A shallow rate-cutting cycle may not also support households and private businesses that much. Household may see the need to rebuild savings first, which we depleted during the pandemic, investment intentions of corporates have been weak.
“Against this backdrop, it appears that drastically and not marginally lower borrowing costs are necessary to entice households and businesses to step up spending,” ANZ added.