‘Philippines poised for growth this year’

2 weeks ago 9

Keisha Ta-Asan - The Philippine Star

March 1, 2025 | 12:00am

A drone shot captures the picturesque view of Laguna Lake in the background of the Ortigas Business District on March 28, 2024.

STAR / Michael Varcas

Amid interest rate cuts

MANILA, Philippines — The Philippine economy is projected to expand by six percent this year, mainly driven by low inflation and anticipated rate cuts, which are expected to stimulate economic activity, according to analysts.

Ritchie Ryan Teo, chief investment officer at Sun Life Investment Management and Trust Corp., said gross domestic product (GDP) growth would improve to 6.2 percent in 2025 from 5.6 percent in 2024.

“The Philippines is still very much consumption-driven. With inflation rates growing lower, we think that consumption will be rebounding for this year. So that’s the main driver,” Teo said.

The economy expanded by 5.2 percent year-on-year in the final quarter of 2024, falling short of expectations. It brought full-year GDP to 5.6 percent last year, below the six to 6.5 percent growth target of the government.

Teo said inflation would remain low at 3.1 percent in 2025, settling within the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

With inflation under control, Teo expects the BSP to cut rates two to three times this year, alongside the US Federal Reserve’s expected rate cuts.

Jonathan Koh, economist at Standard Chartered Bank, said the Philippines may grow by six percent this year, hitting the lower end of the government’s six to eight percent target.

The Philippines remains one of the fastest-growing economies in the region.

However, Koh expressed caution regarding household consumption as there are potential vulnerabilities in the labor market.

“The unemployment rate is very low at below four percent, but a large portion of the workforce consists of unpaid family workers and self-employed individuals, rather than salaried workers in private establishments,” he said.

While private sector employment has started to pick up, Koh said a sustained recovery in salaried jobs is necessary to strengthen household consumption.

On the positive side, easing inflation and stable remittances are expected to support consumer spending. Investments are also gaining momentum, with loan growth picking up, which Koh expects to continue amid the BSP’s rate cuts.

Given the higher interest rates in the US, Koh believes the BSP’s rate-cutting cycle will be shallower than initially expected.

Koh projects three rate cuts of 25 basis points each, likely in June, August and in the fourth quarter.

If realized, this would bring the key policy rate to five percent from 5.75 percent. Koh said that the BSP remains cautious due to external policy uncertainties, particularly the risk of a weaker peso, which could affect inflation expectations.

Teo, meanwhile, said that the BSP’s decisions would likely be influenced by the moves of the US Federal Reserve.

He said that if the Fed pauses rate cuts, the BSP might also delay its moves to prevent excessive peso depreciation.

“If the BSP cuts ahead of the Fed, the natural effect would likely be a weaker peso due to the narrowing interest rate differential,” Teo said.

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