FASTER PRIVATE CONSUMPTION will be crucial for the Philippine economy to hit its growth target this year, S&P Global Ratings said.
S&P Global economist for Asia-Pacific Vishrut Rana said Philippine gross domestic product (GDP) is projected to expand by 5.8% this year.
“The key swing factor for the rest of the year is whether private consumption comes back online or whether it remains slightly weak and that will ultimately determine whether the economy can hit the 6% growth mark. For the moment, we have 5.8%. There’s some upside risk to that number,” he said in a webinar on Tuesday.
Philippine GDP expanded by 6.3% in the second quarter, bringing first-half growth to 6%.
To meet the lower end of the government’s 6-7% target, the economy must expand by at least an average of 6% in the second half of 2024.
Domestic demand is expected to support the growth outlook of the Philippines and the rest of Southeast Asia, S&P Global said.
“What we observe is the domestic demand in the region is holding up pretty well. Generally speaking, private consumption and investment are both doing relatively okay,” Mr. Rana said.
“This is particularly relevant given that we’ve seen tighter monetary policy over the past couple of years, and that has not slowed down domestic demand as much as feared earlier.”
However, Mr. Rana cited risks to this outlook, such as a global slowdown.
“In particular, if global growth turns out to be weaker than expected, then we could see a deterioration in Southeast Asia’s growth outlook driven by weakness in manufacturing and trade,” he said.
He noted that growth in the Philippines has been driven by the public sector.
“In the Philippines, what we observe is that it’s the public sector that’s holding up growth. We see public spending remaining very strong. Investment activity is strong. On the other hand, private consumption growth is slightly weaker,” he said.
Second-quarter GDP growth was primarily driven by gross capital formation, which expanded by 11.5%. Government spending also grew by 10.7%, a turnaround from its 7.1% contraction a year earlier.
On the other hand, household final consumption rose by 4.6% year on year in the second quarter, slowing from the 5.5% growth a year ago. Private consumption typically accounts for over 70% of the economy.
“Sectorally speaking, some of the service sectors continue to perform relatively well. We see some weakness in manufacturing, which is holding back the economy somewhat,” Mr. Rana added.
For 2025, S&P Global sees Philippine growth expanding by 6.1% due to an “improvement largely based on gradually recovering domestic demand and also a normalization of monetary policy going forward,” he said.
Meanwhile, S&P Global said that inflation is not a “major risk” at the moment for the Philippines and the rest of the region.
“We did see an uptick in the latest inflation reading… so there was an acceleration, it was largely driven by food. However, if you look at core inflation, that is still under the 3% mark,” Mr. Rana said.
Headline inflation likely settled at 3.7% in August, according to the median estimate yielded from a BusinessWorld poll of 15 analysts. If realized, this would be slower than the nine-month high of 4.4% in July and the 5.3% clip in the same month a year ago.
The BSP earlier said that the spike in July inflation was expected and only temporary, with inflation expected to return to within the 2-4% target band from August onwards.
“Accordingly, central banks in the region are also likely to be cutting interest rates. So we expect BSP to cut further. (The BSP is) likely to lower the interest rates, but also at the same time, not so sharply that the currency is affected,” Mr. Rana said.
BSP Governor Eli M. Remolona, Jr. earlier said that the central bank can cut rates by another 25 basis points (bps) in the fourth quarter. This after the Monetary Board delivered a 25-bp rate cut at its meeting last month, bringing the key rate to 6.25%.
Meanwhile, Mr. Rana said Southeast Asian currencies are expected to remain “relatively stable” for the rest of the year, “assuming no surprises to our Fed rate outlook.”
S&P expects the US Federal Reserve to deliver two rate cuts this year, one in September and another towards the end of the year.
“What we’ve seen over the last month is significant strength in global currencies, but particularly Southeast Asia currencies against the US dollar. We’ve seen appreciation in the range of between one and a half to 3% against the dollar or several currencies,” he said.
“The peso also appreciated over that time period. This is based on expectations of easing out of the US Fed. The pace of easing will determine the currency outlook as well,” he added.
The peso closed at P56.61 against the greenback on Tuesday, weakening by 23 centavos from its P56.38 finish on Monday. The local currency was previously trading at the P57-58 per dollar level in the past months.
The peso is expected to range from P56 to P58 this year, according to latest Development Budget Coordination Committee data. — Luisa Maria Jacinta C. Jocson
