PHILIPPINE gross domestic product (GDP) growth may fall below the government’s target for this year and next, DBS Bank said, even as easing inflation and lower interest rates are expected to boost consumption.
In its ASEAN-6 2025 Outlook, DBS said Philippine GDP is expected to grow by 5.8% this year and by 5.6% in 2026, missing the government’s 6-8% target for both years.
Philippine GDP likely expanded by 6% in 2024, falling short of the 6-6.5% goal.
“Growth momentum is expected to get a hand from easing inflation into 2025, which will provide relief to household purchasing power and a cut in rice tariffs which lowers the staple’s prices,” DBS said.
DBS forecasts headline inflation to average 2.6% in 2025 and 2.4% in 2026.
These projections are much lower than the Bangko Sentral ng Pilipinas’ (BSP) forecasts of 3.3% and 3.5% for this year and the next, respectively.
Headline inflation averaged 3.2% in 2024, well within the 2-4% central bank target.
“Lower borrowing costs will also be a positive for the private sector’s financing needs, including working capital requirements,” DBS said.
“Having raised benchmark rates by the most in the region in the last two years, the BSP cut rates by 75 bps in the second half 2024, notwithstanding pressure on the currency.”
The BSP, which cut ahead of the US Federal Reserve in August, delivered a total of 75 basis points (bps) worth of cuts last year, bringing the benchmark rate to 5.75% by end-2024.
“The BSP had projected a one- to two-year lag period before monetary policy easing impacts the economy, suggesting that rates will maintain a dovish bias into 2025.”
DBS expects the central bank to slash rates by 50 bps this year to bring the key rate to 5.25% by end-2025 and deliver another 50 bps of cuts in 2026 to 4.75%.
“Easing inflation has pushed real rates to strong positive territory, signaling that the regional central banks have room to make policy settings ‘less restrictive,’” it added.
The Monetary Board is set to meet on Feb. 13 for its first policy-setting meeting of the year.
BSP Governor Eli M. Remolona, Jr. has signaled further easing this year as the current policy rate is still in “restrictive territory.”
DBS also noted that the peso volatility last year “did not deter the BSP from cutting rates.”
The bank expects the peso to potentially breach the record low and end at P60.2 per dollar by end-2025.
It sees the local unit strengthening to P59 against the greenback at end-2026.
Meanwhile, Manulife Investment Management (Manulife IM) said Philippine economic growth may range from 5.5% to 6% this year.
“We do expect inflation to remain within the target range of 2-4% for 2025 and we do expect the growth environment with benign inflation should be in the range of 5.5 to 6% for 2025,” Manulife IM Asia (ex-Japan) Fixed Income Chief Investment Officer Murray Collis said in an online briefing on Wednesday.
Mr. Collis said further easing by the Fed and the BSP could support the Philippine economy.
“We do think that the Fed as well as the BSP are intending to cut rates this year, which will be supportive for the Philippine markets. For us, when we’re investing onshore in the Philippines, we do think that that backup in the last few months really creates some value and we think that that could potentially be an interesting buying opportunity for investors over the course of this year,” he said.
TRADE PROSPECTSMeanwhile, DBS said the Philippines is among the least-affected economies in the region by US President Donald J. Trump’s restrictive trade policies.
“ASEAN-6 will be wary of increased protectionism under the new US administration led by President Donald Trump.”
The impact on these economies would depend on the pace of when these policies will be rolled out, it added.
“Trade reliant economies like Vietnam, Thailand, Malaysia, and Singapore are likely to feel the heat from any escalation in tensions between US and China.”
“More domestic-oriented economies like Indonesia and Philippines are likely to experience a shallower impact, although we are mindful of material spillover effects on any direct tariff action,” it added.
Mr. Trump, who was sworn in as US President for a second time on Monday, has vowed to impose tariffs of up to 60% on imports of Chinese goods and 25% for Canadian and Mexican imports, as well as a 10% universal tariff.
However, DBS is expecting a positive trade outlook early this year in the region due to a “frontloading of orders before US-China or US-region tariffs are imposed.” — Luisa Maria Jacinta C. Jocson with inputs from A.M.C. Sy
