PHL is likely to grow 6% this year

By means of Luisa Maria Jacinta C. Jocson, Reporter

According to analysts, the Philippines’ gross domestic product (GDP) growth is expected to average 6% this year, at the lower end of the government’s target of 6-7%.

Fitch Solutions unit BMI cut its Philippine GDP growth forecast to 6% from 6.2% earlier this year after weaker-than-expected second-quarter data.

“The latest growth results have clearly shown that we have overestimated the health of the Philippine economy,” the report said.

The Philippine Statistics Authority (PSA) reported last week that GDP grew 6.3% in the second quarter, an acceleration from the revised 5.8% in the first quarter and better than the average estimate of 6% in An Business world poll.

BMI had previously forecast GDP growth of 6.5% for the second quarter.

During the first half of the year, GDP growth averaged 6%. To meet the lower end of the government’s 6-7% target, the economy would need to grow by at least 6% in the second half.

“To reach our previous growth projection of 6.2% for 2024, the economy will need to grow by around 6.4% in the second half, which we believe is unlikely,” BMI said.

BMI said the Philippines’ second-quarter growth figures “paint a misleading picture of the health of the economy.”

“What reinforces our view is that quarter-on-quarter growth of 0.5% was the softest pace since the second quarter of 2023. Much of this weakness stemmed from poor performance in the external sector, as we expected ,” the report said.

On a quarterly seasonally adjusted basis, GDP grew by just 0.5%, slower than the 1.1% in the previous quarter. Ffirst quarter.

“Indeed, exports contributed just 1.2 percentage points (ppt) to total growth, halving the strong contribution of 2.4 percentage points in the previous quarter. Together with a strong recovery in imports, net exports had a negative impact on the figures by 0.8 percentage points Ffigure,” it added.

PSA data showed exports of goods and services grew 4.2% in the second quarter, much slower than the 8.4% growth a quarter ago.

“Against the backdrop of a slowing global economy in the second half, external demand will prove even less supportive in the coming quarters,” the report said.

Despite this, BMI noted that domestic demand is holding up “fairly well.”

Household consumption growth slowed to 4.6%, compared to 5.5% a year ago. Private consumption represents about three-quarters of the economy.

“Despite a decline in the contribution of private consumption from 3.4 percentage points in the first quarter to 3.2 percentage points in the second quarter, the recovery in investment activity more than offset this,” the report said.

Gross capital formation, or the investment component of the economy, grew 11.5% in the second quarter, faster than growth of 0.5% in the previous quarter and 0.7% a year ago.

“The contribution of gross fixed capital formation increased from 0.5 percentage points to 2.5 percentage points, the highest level in almost two years. We expect the upcoming interest rate cuts by the Bangko Sentral ng Pilipinas (BSP) to further boost domestic activity,” the report said.

CITI OUTLOOK
On the other hand, Citigroup, Inc. its GDP growth projection to 6% this year from 5.9% previously, on expectations that economic conditions would improve.

“While household consumption is likely to recover only gradually, there are supporting factors such as strong employment and expected lower inflation and interest rates in the coming months,” Citi Philippines economist Nalin Chutchotitham said in a report.

InFEven after the peak in July, growth appears to be declining further. “We also agree with the BSP that inflation is expected to decline from August onwards,” the report said.

Head inFInflation rose from 3.7% in June to 4.4% in July, the fastest pace in nine months.

In the Ffirst seven months of the year, head onFaverage 3.7%. The BSP expects inFthis year an average of 3.3%.

For 2025, Citi expects stable growth of 6%. This would be lower than the government target of 6.5-7.5%.

“We maintain our expectation of 6% growth in 2025, taking into account increasing external headwinds due to the slowdown in several advanced economies (particularly the US), which are the Philippines’ main trading partners and sources of remittances from foreign workers,” said Ms Chutchotham. .

EASIER TO GET STARTED
Meanwhile, Citi said it expects the BSP to begin its easing cycle at its meeting on Thursday.

“We continue to expect a 25 bp interest rate cut from the August 15 policy meeting, despite a temporarily high interest rate level.Fprinted in July,” Ms Chutchotham said.

Citi also expects the Monetary Board to cut rates by 25 basis points at its October and December meetings, for a total of 75 basis points for all of 2024.

“The BSP could, with a small probability, err on the side of caution and hold firm in August, given the economic growth in July.F4.4% year-on-year, amid volatile food and energy prices,” Ms Chutchotitham said.

A Business world A poll last week showed that nine out of 16 analysts surveyed expect the Monetary Board to cut rates by 25 basis points at Thursday’s review. This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the coronavirus pandemic.

BSP Governor Eli M. Remolona Jr. said last week that it may be “slightly less likely” to cut rates at the upcoming meeting, amid the July rebound inFlat.

At the same time, Robert Carnell, ING Bank NV’s head of research and chief economist for Asia Pacific, said he now expects the BSP to keep rates unchanged on Thursday due to recent market volatility.

“If it were me… I would probably leave it this month and wait until the market calms down a bit,” he said at a briefing on Monday. “I think what makes it more of a toss-toss is the volatility of the market backdrop. We have had a very, very hectic and volatile few weeks.”

Stronger than expected GDP figures in the second quarter and in JulyFThe August rate cuts also do not support the rate cut, Mr. Carnell said.

“GDP numbers could have supported this had they been weaker… That said, the inFThe numbers made it a little less likely that they would relax in August,” he said.

Mr Carnell also noted that the BSP would have to wait for other central banks to cut interest rates FFirst see how the market reacts.

He expects the Fed to cut by 100 bps this year: a 50 bp cut in September, a 25 bp cut in November and another 25 bp in December.

“I just think the outlook will look a little better in a month’s time, and there will be some such safety in numbers at that stage as well, because the Fed will have some dovish by then,” he said.

In addition to the planned policy meetings, Mr Carnell also said the BSP could still implement an off-cycle rate cut, but the move risks unnecessarily alarming the market.

Mr Remolona previously said they were “always open” to off-cycle rate cuts.

After the August policy meeting, the BSP has only two meetings in the fourth quarter – October 17 and December 19. – of Aaron Michael C. Sy