‘Weaker economic growth calls for more easing’

MANILA, Philippines — A widening negative output gap could justify further monetary policy easing, the Bangko Sentral ng Pilipinas (BSP) said following the Philippine economy’s weaker-than-anticipated gross domestic product (GDP) growth in the fourth quarter of 2024.

“Right now, we have a kind of a negative output gap. We’re growing at a little bit below capacity, and we need to assess whether the (GDP) number widens that gap,” BSP Governor Eli Remolona Jr. told reporters on the sidelines of the BSP’s 2025 Media Information Session yesterday. 

 The output gap, which measures the difference between actual and potential economic output, remains a key consideration for monetary policy. A negative gap suggests that the economy is underperforming, which could support the case for interest rate cuts, Remolona said. 

“If the gap is widening, if it becomes more negative, then it would call for more easing,” Remolona said. “But not by itself – we have to look at where inflation is and our position relative to the so-called Goldilocks rate.”

 When asked about the possibility of a rate cut on Feb. 13, Remolona confirmed it is under consideration: “It’s on the table.” 

The country’s GDP grew by 5.2 percent in the fourth quarter, matching the previous quarter’s pace but falling short of market forecasts. This brought full-year GDP growth to 5.6 percent in 2024, below the government’s growth target. 

 Meanwhile, the BSP expects January inflation to hit between 2.5 and 3.3 percent in January. If inflation remains within this range, it would mark the third consecutive month that inflation stayed within the BSP’s two to four percent target band. The Philippine Statistics Authority will release the inflation data on Feb. 5.

 With inflation staying within target and GDP growth slowing, analysts believe the Philippine central bank will likely prioritize boosting liquidity and supporting recovery.

“The weaker-than-expected GDP growth has strengthened the case for a BSP rate cut in February,” BPI lead economist Jun Neri said in a commentary. 

 “With inflation still within the target, the central bank may put more priority on growth and support the economy with more liquidity,” he said.

 According to Neri, the economy was weighed down by sluggish consumer and investment spending. Inflation also dampened household consumption, with food spending growing by 4.7 percent, still below pre-pandemic levels.

 While household consumption is typically expected to pick up in the last quarter of the year due to holiday spending, its growth slowed to 4.7 percent in the fourth quarter of 2024 from 5.2 percent in the previous quarter. 

For full-year 2024, household consumption also grew at a slower rate of 4.8 percent from 5.6 percent in 2023.

 “However, we continue to see risks that could limit the BSP’s rate cuts to just 50 basis points this year. The country’s current account deficit remains substantial, making the peso more vulnerable to external forces,” Neri said. 

 These external forces include the uncertainties surrounding the monetary policy of the US Federal Reserve and the policies enacted by US President Donald Trump.

“Aggressive rate cuts from the BSP may exert pressure on the peso,” Neri said. 

 Philippine Equity Partners Inc. (PEP), the research partner of Bank of America Merrill Lynch, likewise said that the slower GDP growth in the fourth quarter could justify BSP rate cuts within the first half of the year.

 “We maintain that the BSP may cut its policy rate by 25 basis points at its February and April meetings, lowering the policy rate a total of 50 bps to 5.25 percent within the first half – while the Fed remains on hold,” PEP research analyst Jojo Gonzales said.

 Despite the weaker 2024 performance, PEP maintains its 2025 GDP growth forecast at 5.9 percent, expecting reduced import growth to offset softer consumption gains. 

However, Gonzales warned that aggressive BSP rate cuts could exert pressure on the peso, which remains vulnerable to external shocks.