THE PHILIPPINES is projected to be the second-fastest growing economy in Southeast Asia this year and in 2025 as domestic demand is expected to remain resilient, according to Moody’s Ratings.
“We have kept unchanged our 2024 and 2025 forecasts for the Philippines and Malaysia and also expect sequentially higher growth in both countries. Domestic demand remains the primary economic growth engine for the Philippines,” it said in a report.
Moody’s Ratings kept its forecast for gross domestic product (GDP) growth for the Philippines at 5.9% this year and 6% in 2025.
However, these projections fall short of the government’s growth targets of 6.5-7.5% for this year and 6.5-8% for next year.
At 5.9%, the Philippines has the second-fastest projected growth in Southeast Asia for 2024, after Vietnam (6%). It is ahead of Indonesia (5%), Malaysia (4.5%) and Thailand (2.8%).
For 2025, the Philippines is again expected to post the second-fastest growth behind Vietnam (6.5%) but ahead of Indonesia (5%), Malaysia (4.8%), and Thailand (3%).
Moody’s Ratings said that growth in domestic demand-driven countries like the Philippines is “increasing more than we previously expected.”
The economy grew by a weaker-than-expected 5.6% in 2023, slower than the 7.6% expansion in 2022 and short of the 6-7% government goal.
Household consumption typically accounts for three-fourths of the Philippine economy. Last year, household spending expanded by 5.6%, much slower than 8.3% in 2022.
Meanwhile, Moody’s Ratings sees inflation averaging 3.8% this year, higher than the Bangko Sentral ng Pilipinas’ (BSP) 3.6% full-year forecast but within the 2-4% target.
For 2025, it sees inflation easing to 3.3%, a tad higher than the 3.2% central bank forecast.
“Inflation picked up in February in most Asian economies on higher food prices, with the exception of Malaysia,” Moody’s Ratings said.
Inflation picked up to 3.4% in February, the first time it quickened in five months. Inflation could have accelerated further to 3.8% in March, according to the median estimate yielded in a BusinessWorld poll of 17 analysts.
However, rice prices may continue to rise amid supply issues.
“Rice inflation continues to accelerate with higher import prices and the persistent lack of effective supply-side responses. But the risk is limited of food inflation broadening to core inflation because we do not expect a continued increase in food prices,” it added.
In February, rice inflation surged to 23.7% or its fastest pace since the 24.6% recorded in the same month in 2009.
Meanwhile, Moody’s Ratings said that central banks in Asia are unlikely to begin policy easing before the US Federal Reserve.
“Asian central banks are maintaining tight monetary policies to preserve financial and foreign exchange stability, and appear unwilling to start cutting policy rates before the Fed,” it said.
The BSP kept its benchmark rate steady at a near 17-year high of 6.5% for a third straight meeting in February. It raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023.
The Monetary Board will hold its next policy meeting on April 8.
Markets expect the BSP to begin cutting rates by midyear, in step with the Fed.
However, BSP Governor Eli M. Remolona, Jr. has said that while they “closely” watch the US central bank’s moves, its own monetary decisions are not dependent on the Fed.
“The resulting pressures on growth, leveraged economic sectors, or both, could eventually push Asian central banks to begin cutting rates even in a Fed-on-hold scenario and letting foreign exchange rates weaken in the process,” Moody’s Ratings said.
“There could also be implications on capital inflows and outflows. Such policy pivots could be delayed through calibrated fiscal support or other macroprudential measures, however,” it added. — Luisa Maria Jacinta C. Jocson
