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After the Philippine economy grew by a disappointing 5.3 percent in the last quarter of 2024, think tank Capital Economics expects it to slow down further, as the boost from trade and investments was not enough to offset the weaker growth in consumer and business spending.
“We think GDP [gross domestic product] growth slowed in the first quarter as a boost from the external sector was offset by softer domestic demand growth,” Capital Economics senior Asia economist Gareth Leather said in the think tank’s weekly report published on Friday, May 2.
Prior to this Leather described the local economy’s growth in the fourth quarter of 2024 as “rapid,” despite it falling significantly short of the government’s downscaled target of six percent to 6.5 percent.
The Philippine Statistic Authority (PSA) reported that the fourth quarter GDP of the country expanded by 5.3 percent, blaming the series of typhoons that ravaged the country as the major drag. First-quarter GDP data will be released on May 7.
Leather has forecast the local GDP to have expanded by 5.2 percent, slower than the consensus expectations of 5.7-percent growth. Previously, the think tank had projected an even slower growth at 5.1 percent.
According to the data on trade, there was a “a sharp rise in export earnings over the past quarter, which may have partly been driven by firms shipping goods to the US ahead of the introduction of tariffs.”
Consequently, exports to the US jumped in the first quarter, reversing the decline seen in the last quarter of 2024, Leather noted.
However, domestic demand appears to have weakened, he said. “Despite the boost from lower interest rates, retail sales growth slowed while imports of capital goods declined sharply” in the first quarter, reflecting a broader economic slowdown.
Leather still expects the Bangko Sentral ng Pilipinas (BSP) to slash key policy rates by 25 basis points (bps) in June, and another two quarter-point cuts by year-end. This would bring the key policy rate at 4.75 percent from the 5.5 percent at present after the April 10 cut.
If realized, Leather’s growth expectation would mean a massive decline from the 5.8-percent growth posted in the same period last year. It would also move at a relatively flat level, matching the slower growth seen in the third quarter of 2024, after peaking at 6.4 percent in the second quarter.
The lower end of a five percent growth range is weaker than the 5.7 percent seen in the country’s full-year performance in 2024.
Meanwhile, Singapore-based United Overseas Bank (UOB) has projected a 5.6 percent growth year on year. Although closer to the consensus expectations, and the 2024 performance, this rate would still fall below the more ambitious six- to eight-percent growth target.
As for the consumer prices, UOB expects it to increase by 2.1 percent, faster than March’s almost five-year low headline inflation rate at 1.8 percent. March’s inflation rate was a bit faster than the pace seen in May 2020—during the height of strict pandemic lockdowns—when the headline rate stood at 1.6 percent.
April headline inflation data will be released on May 6.
UOB’s forecast would still fall within the upper end of the BSP’s inflation forecast range of 1.3 to 2.1 percent. The central bank cited a slowdown in food inflation alongside a stronger peso as the upside risks, potentially making the April print the slowest rate in over half a decade or since November 2019.
Average inflation for the first three months of the year eased to 2.2 percent, down from 3.3 percent in the same period last year and near the lower end of the government’s two- to four-percent target band.
Moving forward, Leather expects that the jump in exports to the US before the imposition of reciprocal tariffs may slow down in the second quarter.
“But the Philippines is less vulnerable than most economies in the region to a slowdown in global goods trade, given it largely remains a domestically-driven economy,” he argued.
