ECONOMIC GROWTH could continue to settle below the Philippine government’s targets in 2024 and 2025, Deutsche Bank Research said.
“Over the past three months, Asian economies have exhibited diverse growth trends. Malaysia, Thailand, and Singapore have experienced improvement in macroeconomic activity, while Indonesia and the Philippines have encountered a moderate slowdown in economic momentum,” it said in a report.
It cited its own Asia Macro heatmap, which seeks to “gauge the health of different Asian economies using multiple high frequency economic indicators.”
“Across the region only China’s and the Philippines’ growth momentum remained below the average levels of the past decade,” it said.
Deutsche Bank expects Philippine gross domestic product (GDP) to average 5.8% this year and slow to 5.6% next year.
These are both below the government’s 6-7% and 6.5-7.5% targets for 2024 and 2025, respectively.
Philippine GDP averaged 6% in the first half. In order to meet the lower end of the government target, the economy would also need to grow by 6% for the remainder of the year.
In terms of policy, Deutsche Bank expects the Bangko Sentral ng Pilipinas (BSP) to end with the benchmark rate at 5.75% this year and 5% by next year.
The Monetary Board began its easing cycle with a 25-basis point (bp) cut in August, the first reduction in borrowing costs in nearly four years.
A BusinessWorld poll conducted last week indicated that 16 out of 19 analysts expect the Monetary Board to reduce rates by 25 bps on Wednesday, which would bring the target reverse repurchase rate to 6% from the current 6.25%.
“Meanwhile, the BSP remains dovish, in our reading. While local investors expect another 125-175 basis points of cuts in this cycle, we believe more can get priced in if historical real rate levels are revisited,” it said.
“Indeed, real bank loans have been accelerating even before the recent rate cut. We worry the savings-investment balance will deteriorate further down the road,” it added.
Meanwhile, Deutsche Bank also forecasts the peso to “find near-term support, though, from seasonally stronger remittances.”
“The peso has some room to outperform, but only in the seasonally stronger period of the fourth quarter. Renewed nominal effective exchange rate weakness in recent weeks has created space for USD/PHP to move lower in case of USD-weakness,” it said.
“However, the risks are also symmetric to the upside if USD were to strengthen, particularly if this occurs due to higher tariff risks being priced-in,” it added.
The peso closed at P57.865 to the dollar on Tuesday, weakening from its P57.47 finish on Monday.
This was the peso’s worst close since it finished at P57.9 on Aug. 5.
“Any move lower in USD/PHP, if it materializes, is likely to be limited. On our framework of looking at the basic balance of payments (BoP) cushion, the Philippines currently shows up as having none,” it said.
The BSP’s latest projections show the BoP will register a surplus of $2.3 billion this year, equivalent to 0.5% of GDP.
“Customs trade deficits are too large and prevent a sustainable basic BoP surplus in the medium term, and especially in the first half of 2025. Moreover, capital goods imports are starting to pick up as long-delayed very large infrastructure projects are finally getting into their construction phases (from right-of-way acquisition modes).” — Luisa Maria Jacinta C. Jocson
