By Luisa Maria Jacinta C. Jocson, Reporter
PHILIPPINE ECONOMIC EXPANSION might dip beneath 6% in 2025 due to a “mild” recovery in local demand and predictions of a growing trade deficit, according to Bank of America (BofA).
Jojo Gonzales, an economist at BofA Securities focusing on the Philippines, indicated that they expect the country’s gross domestic product (GDP) to grow by 5.9% in 2025.
This would slightly fall short of the government’s adjusted growth goal of 6-8% for the coming year.
The economy grew at a slower-than-anticipated rate of 5.2% in the third quarter, marking its weakest performance over the last five quarters.
During the first nine months, GDP growth averaged 5.8%, a decline from the 6% figure recorded a year prior.
Earlier this month, the Development Budget Coordination Committee modified its economic growth projections to reflect “changing domestic and global uncertainties.”
“Although we foresee a mild recovery in private consumption and investments over the next year, the growth in government expenditure is expected to be subdued, alongside an anticipated widening net trade deficit,” Mr. Gonzales communicated via email to BusinessWorld.
In the third quarter, growth in government expenditure cooled to 5% from 11.9% in the preceding quarter.
Recent statistics from the Philippine Statistics Authority (PSA) revealed that the country’s trade deficit surged to $5.8 billion in October, representing the largest gap in over two years.
On another note, BofA projected that inflation will average 3% next year, comfortably within the central bank’s target range of 2-4%.
The Bangko Sentral ng Pilipinas (BSP) anticipates inflation to average 3.3% in 2025. The central bank stated that risks to the inflation forecast for next year continue to lean towards the upside.
Headline inflation averaged 3.2% over the eleven-month span, according to the latest data from the PSA.
“A depreciated peso poses a risk to this forecast; however, declining oil prices are likely to provide a buffer to mitigate the effects of the weaker currency,” Mr. Gonzales noted.
BofA anticipates that the strength of the dollar will continue into next year, with the peso possibly surpassing the P61 mark.
“The US dollar is expected to remain strong throughout 2025, with our year-end forecast standing at P61,” Mr. Gonzales said.
So far this year, the peso has encountered a historic low of P59-per-dollar on three occasions.
BSP Governor Eli M. Remolona, Jr. previously mentioned that they are monitoring the peso closely and have been slightly more active in the financial markets than usual.
The BSP was compelled to intervene with small quantities over the past few months amid the strengthening dollar following Donald J. Trump’s victory as US President.
Meanwhile, BofA projects that the central bank will implement up to 75 basis points (bps) worth of rate reductions next year.
“This will lower the policy rate to 5% (by end-2025),” Mr. Gonzales remarked.
Last week, the Monetary Board cut borrowing rates by 25 bps during its last policy review of the year, adjusting the key rate down to 5.75%.
The central bank has lowered rates by a cumulative total of 75 bps this year as it commenced its easing cycle in August.
Mr. Remolona had previously stated that enacting 100 bps worth of rate reductions next year could be “excessive.”
The central bank is likely to continue reducing rates in “incremental steps” as it remains vigilant about inflation’s upside risks, the BSP chief added.
“We also predict the Fed rate to stabilize at 4% — one cut in December and two reductions in the first half of 2025,” Mr. Gonzales added.
The Fed proceeded with cuts in December after an aggressive rate increase period but indicated fewer cuts in 2025. Investors are currently attentive to how gradually the US central bank might reduce rates next year, as reported by Reuters.
While a favorable US inflation report on Friday alleviated some worries regarding the pace of cuts next year, markets still anticipate roughly 35 bps worth of easing for 2025.
US investors are bracing for a multitude of changes in 2025 — including tariffs, deregulation, and tax policy — that will resonate throughout the markets as Mr. Trump makes his return to the White House in January.
