Metrobank: Rate cuts may boost economic growth in 2025

This photo taken on January 29, 2019 shows a general view of the skyline of the financial district of Makati in Manila. (Photo by Ted ALJIBE / AFP)

The expected boost to consumption and investments from upcoming rate cuts by the Bangko Sentral ng Pilipinas (BSP) could give the economy more room to expand at a faster rate in 2025, although growth might still fall short of the Marcos administration’s target, Metrobank Research said.

In a commentary, Nicholas Mapa, chief economist at Metrobank, said the combination of easing inflation and lower borrowing costs “could help the Philippines salvage a good growth rate this year, while looking forward to an acceleration for 2025.”

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For this year, Metrobank penciled in a 5.7 percent growth which, if realized, would miss the Marcos administration’s 6 to 7 percent expansion target. But the Bank projects a faster 6 percent growth in 2025, which would still settle below that state’s goal of 6.5 to 7.5 percent.

”A challenged consumer and still lackluster investments may lead to GDP underperforming potential,” Mapa said.

“However, other signs such as slower inflation could give households breathing room to repair balance sheets, while a projected one-two-three rate cut punch before year end could likewise reinvigorate investments momentum,” he added.

Government data showed growth of household spending eased to 4.6 percent in the first quarter—the weakest reading since the 4.8-percent contraction at the height of Covid-19 pandemic in the first quarter of 2021—amid stubbornly high inflation and interest rates.

READ: PH economic growth slower than expected

That, in turn, held back the first quarter gross GDP growth to 5.7 percent, slower than market consensus.

With inflation expected to cool down following the government’s decision to reduce import duties on rice, BSP Governor Eli Remolona Jr. said the central bank might start its easing cycle in August, likely ahead of the US Federal Reserve.

“Getting the economy roaring back to life proves to be challenging,” Metrobank’s Mapa said.

”While the economy still demonstrates strength in various sectors and adapts to market conditions, there are factors that we need to understand and monitor,” he added.