As inflation cooled to 3.3 percent in August (from 4.4 percent in July), government's optimism of better days ahead for the economy might just be dampened with food prices expected to rise bigtime during the Christmas season brought about by the heavy holiday demand for family and corporate gatherings.
Inflation cooled because of cheaper food, non- alcoholic beverages and transport costs, with rice inflation slowing to 14.7 percent, down from almost 21 percent, as a result of reduce import tariffs that took effect in July.
Still, economists are projecting a subdued near-term growth for the economy amid slow fiscal consolidation and weakening remittances of overseas Filipinos.
Slower growth
Capital Economics said that “GDP (gross domestic product) growth in the Philippines slowed again in the second quarter of the year, and we expect the economy to remain weak over the coming quarters,” as Senior Asia Economist Gareth Leather and Economist Placement Student Harry Chambers’ report was quoted by Business World.
Capital Economics expects GDP to grow by 5.1 percent this year (against government's target of 6 percent) and 5.5 percent in 2025, missing the government’s goal of 6-7 percent and 6.5-7.5 percent targets, respectively.
The Philippine economy grew by 6.3 percent in the April-to-June period, the fastest in five quarters.
In order to meet the lower end of the government’s target, the economy would need to grow by at least 6 percent in the second half, the paper said.
Remittances, policies
“Tighter fiscal policy and weakening remittances will weigh on economic growth in the Philippines,” the economists added.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed cash remittances rise by 2.9 percent to $19.332 billion in the first seven months, and it expects remittances to grow by 3 percent this year.
“Fiscal policy is also likely to hold back growth. The government is aiming to reduce government debt, which shot up during the pandemic, to more sustainable levels,” Capital Economics said.
Capital Economics cited other risks to its growth outlook, including the tensions between China and the Philippines, which poses a downside risk but since the Philippines is not closely integrated into China's economy, the fallout would be limited.
Economists cautious
For 2026, Capital Economics sees the GNP growing by an average 6.5 percent or at the low-end of the government's 6.5-8 percent target.
S&P Global Ratings separately “nudged down” the Philippines’ growth forecast to 5.7 percent from 5.8 percent previously.
“Southeast Asian growth has remained generally solid, benefiting from the export recovery and robust domestic demand,” S&P Global Ratings Asia-Pacific Chief Economist Louis Kuijs and Asia-Pacific Senior Economist Vishrut Rana said.
S&P’s growth forecast for the Philippines this year makes it the third-fastest economy in the Asia-Pacific region, after India (6.8 percent) and Vietnam (6.2 percent).
However, it raised the Philippines’ growth forecast for 2025 to 6.2 percent from 6.1 percent earlier. This still places it as the country with the third-fastest projected growth, after India (6.9 percent) and Vietnam (6.8 percent).
“Asia-Pacific growth remains largely intact, driven by a continued export recovery and, in most emerging markets (EMs), solid domestic demand,” it said.
Inflation
S & P sees Philippine growth averaging 6.4 percent in 2026 and 6.5 percent in 2027.
Capital Economics said the easing inflation and lower interest rates should give a boost to domestic demand.
“We expect inflation to remain subdued over the coming months, helped by a combination of weak growth, beneficial base effects and government efforts to boost the supply of agricultural goods,” Capital Economics said, as it sees inflation settling at 3.3 percent this year.
S&P Global expects inflation to average 3.4 percent, in line with the central bank’s own projection.
Capital Economics also expects the BSP to further reduce interest rates.
“With economic growth set to struggle and inflation likely to stay subdued, we expect further rate cuts by the central bank over the coming months,” it added.
The Monetary Board delivered a 25-basis-point (bp) rate cut last month, its first time reducing rates in nearly four years. There could be another 25-bp cut in the fourth quarter, BSP Governor Eli Remolona, Jr. earlier said.
Capital Economics forecasts the BSP to cut by 75 bps this year and end the policy rate at 5.75 percent. It also sees 100 bps worth of cuts next year to bring the key rate to 4.75%.
S&P Global expects the benchmark rate to end at 5.5 percent this year and 4.25 percent in 2025.
“Regional central banks have nevertheless generally refrained from lowering policy rates. The Philippines, New Zealand, and Indonesia have been exceptions; rate setters there have recently agreed on cuts of 25 bps,” S&P Global added.
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