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S&P Global trims PHL growth outlook

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People watch the sunset along Manila Bay in Manila, Philippines, April 4, 2024. — REUTERS

S&P GLOBAL RATINGS trimmed its gross domestic product (GDP) forecast for the Philippines for this year and 2025 amid expectations that high interest rates will continue to crimp domestic demand.

In a report, the credit rater cut its growth forecast for 2024 to 5.8% from 5.9% previously. It also lowered its GDP estimate for 2025 to 6.1% from 6.2% earlier.

S&P’s latest projections are below the government’s 6-7% growth goal for this year, and 6.5-7.5% for 2025.

“Domestic demand started out the year on a disappointing note, at least in part due to the high level of interest rates,” S&P Global Ratings Senior Economist Vincent Conti said in an e-mail.

In the first quarter, the Philippine economy grew by a weaker-than-expected 5.7%.

Household consumption, which accounts for about three-fourths of growth, grew by 4.6%. This was its slowest pace since the 4.8% drop in the first quarter of 2021.

“With the Fed staying higher for longer than initially expected, so will the Bangko Sentral ng Pilipinas (BSP),” Mr. Conti said.

US Federal Reserve officials are now projecting just one rate cut this year and delaying any policy easing moves to as late as December.

A BusinessWorld poll conducted last week showed that all 15 analysts surveyed expect the BSP to keep rates unchanged at its policy meeting on Thursday.

The Monetary Board has kept its key rate at a 17-year high of 6.5% since October 2023 to tame inflation.

BSP Governor Eli M. Remolona, Jr. had said that the earliest the central bank can begin cutting rates is by August for a total of 25-50 bps for the year.

S&P said it expects the benchmark rate to stand at 6.25% by end-2024, which implies a 25-bp cut this year.

“This (high interest rates) will continue to pose headwinds for a full recovery in domestic demand. Nonetheless, there are favorable base effects in exports that, combined with relatively slower imports due to domestic demand, will provide growth support in the interim,” Mr. Conti added.

Despite the cut, S&P Global still expects the Philippines to post the second-fastest growth in the Asia-Pacific  region this year, the same as Vietnam (5.8%) and just behind India (6.8%).

For 2025, the 6.1% growth projection for the Philippines would make it the third-fastest growing economy, after India (6.9%) and Vietnam (6.7%).

“Better export growth will lead to higher GDP growth this year in Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. Other economies should also benefit from stronger exports this year,” it added.

Meanwhile, the debt watcher said that inflation is projected to average 3.4% this year. This would be slightly below the BSP’s 3.5% full-year forecast.

It sees inflation further easing to 3.1% in 2025, also below the BSP’s projection of 3.3% for next year.

“Inflation pressure has eased in the region. But the prospect of delayed US policy rate cuts is leading Asian central banks to do the same and take other measures to protect domestic currencies. Emerging markets could be tested if US rates were to rise further and capital outflows intensified,” S&P said.

Headline inflation picked up to 3.9% in May, marking the sixth straight month inflation settled within the BSP’s 2-4% target band. — Luisa Maria Jacinta C. Jocson

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