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The current fiscal and monetary policy stance in the Philippines remained “appropriate” and supportive of growth, ASEAN+3 Macroeconomic Research Office (AMRO) said, adding that the economy could potentially expand by over 6 percent this year.
In a statement on Tuesday, AMRO kept its gross domestic product (GDP) growth forecast for the Philippines at 6.1 percent for this year and 6.3 percent in 2025, driven by “higher government spending as well as an upturn in external demand, and strengthening domestic demand.”
READ: BSP shaves rate by 25 bps, kicks off easing cycle
The decision to affirm its earlier forecast was an outcome of AMRO’s annual consultation visit to the Philippines from Aug. 27 to Sept. 6. If the group’s projection is realized, GDP expansion in 2024 would beat the 6 to 7 percent growth target of the Marcos administration, but would fall short of the 2025 goal of 6.5 to 7.5 percent growth.
AMRO said “the current fiscal-monetary policy mix is appropriate,” adding that the Bangko Sentral ng Pilipinas (BSP) has room to further cut interest rates while fiscal consolidation has been slow as the state tries to sustain high spending to support growth.
”There is room to adopt a less restrictive monetary policy stance if current macroeconomic trends continue. However, if supply-side risks emerge, the whole-of-government approach should be taken to address inflationary pressures,” the group said.
”The government is likely to continue its medium-term fiscal consolidation plan at a slower pace to better support economic growth. However, it will be prudent to accelerate the pace of fiscal consolidation if conditions allow,” it added.
At its Aug. 15 meeting, the policy-making Monetary Board (MB) slashed the benchmark rate by 25 basis points (bps) to 6.25 percent. That kicked off what Governor Eli Remolona Jr. had called a “calibrated” easing cycle while hinting at another cut of the same size either at the October or December meeting of the MB.
The decision of the BSP took into account its outlook for inflation to start a downtrend in August amid lower tariff rates on rice, a major food staple for Filipino households.
READ: Philippine inflation eases to 3.3% in August
The move also considered the 6.3 percent economic growth in the second quarter, which was magnified by favorable base effects that masked the 4.6 percent growth in consumption, a pace that was uncommonly low for the Philippines.
By reducing borrowing costs, the BSP wanted to boost consumption and Private investments. At the same time, the lower rates would translate to cheaper credit for the Marcos administration, which has to bridge a fiscal deficit amounting to P1.5 trillion this year.
Moving forward, AMRO said the government must boost workers’ productivity and improve the state’s fiscal health to sustain the growth momentum.
”Furthermore, a comprehensive strategy for enhancing the country’s competitiveness, including raising infrastructure investment, continuing digitalization and developing a sustainable economy, is crucial to bolster the Philippines’ economic growth potential,” it added.