Economic growth continues, but slower than expected

The Philippine economy continued to expand in 2024, but the country was hit by challenges both domestic and overseas, leading economists and the government ministers to downgrade their forecasts for the year even as they expect acceleration by 2025.

The gross domestic product (GDP) grew by 5.2% in the third quarter, decelerating from the 6.4% expansion in the previous quarter and the slowest in five quarters, bringing the year-to-date average to 5.8%.

This is short of the government’s initial target of 6.0% to 7.0%, which the economic cluster or the inter-agency Development Budget Coordination Committee (DBCC) adjusted to a narrower range of 6.0% to 6.5%.

Aside from the government, multilateral lenders and agencies have also trimmed their forecasts for Philippine growth this year: the World Bank to 5.9% from 6.0% earlier; the International Monetary Fund (IMF) to 5.8% from 6.0%; and Fitch Group unit BMI to 5.8% from 6.0%; among others.

Should these be realized, these will still be faster than the 5.6% recorded in 2023 which fell short of the government’s 6.0% to 7.0% target, as the high inflation environment dampened consumption.

For Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort, the economy could have posted a bigger expansion this year if not for the prolonged high inflation rates.

“Economic or GDP growth would have been faster had it not been for higher inflation/prices and interest rates over the past 2.5 years or since the Russia-Ukraine war that started on February 24, 2022 that triggered/lead to higher inflation globally, prompting the Fed and other global central banks to increase interest rates,” he said in an email interview.

Inflation clocked in at 2.5% in November, faster than the 2.3% print in October, bringing the year-to-date average to 3.2%, within the Bangko Sentral ng Pilipinas’ (BSP) target range of 2.0% to 4.0%.

“For the coming quarters, an easing inflation trend near the central bank target would support/justify future cuts in key policy rates/interest rates that would fundamentally lead to faster GDP/economic growth than otherwise,” Ricafort said.

The BSP has cut key policy rates by 50 basis points this year, with the latest being a 25-basis-point reduction made during the Monetary Board meeting in October which brought the benchmark rate to 6.0%, still among the highest in the region. The next meeting is scheduled on December 19.

El Niño

Aside from inflation, the economy was also impacted by climate-related events such as the El Niño, which started in July 2023 and ended in June this year, adversely affecting the country’s agriculture sector and bringing about at least P9.5 billion in damage.

The country is also bracing to be hit by La Niña, associated with above-normal rainfall conditions, with an alert by the state weather bureau in July.

For financial markets, the Philippine peso has been trading at the P58:$1 level for most of December, weaker than the P55.37:$1 recorded on December 29, 2023, the last trading day of the past year.

It sank back to the record-low of P59:$1 on November 21, and again on November 26, which analysts attributed to the strength of the US dollar, along with geopolitical risks amid the strikes carried out between Russia and Ukraine.

The local bellwether, the Philippine Stock Exchange index, is also trading at the 6,400 level, comparable to the close of 6,450.04 during the last trading day of 2023.

Despite the conditions, analysts expect the economy to accelerate in the coming year, driven by higher spending both public and private.

“With inflation decelerating, growth prospects remain positive. I am looking at a GDP growth projection of 5.80% for 2024, 6.30%  for 2025 supported by robust services, infrastructure sectors and improving consumption,” Jonathan Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said in a separate email.

President Ferdinand “Bongbong” Marcos Jr., however, has delayed the signing of the proposed P6.352-trillion budget for 2025. It was scheduled to be signed on Friday, December 20, but Marcos said he needed more time to review the measure as certain items and provisions will be vetoed. It is now set to be signed on December 30.

Moving forward, analysts have also flagged the potential impact of the US President-elect Donald Trump on global trading relations, as he earlier said he would sign an executive order that would slap a 25% tariff on goods coming from Mexico and Canada, and an additional 10% on China until it blocks the smuggling of fentanyl.

“The possibility of more protectionist policies by Donald Trump would benefit US businesses/industries and could lead to US trade war with China and other countries, could lead to higher US inflation and could slow down global trade and overall world economic/GDP growth,” RCBC’s Ricafort said. — BM, GMA Integrated News