Photo by Ted Aljibe/Agence France-Presse
Economic growth this year might fall short of President Marcos’ goal, Citi Research said as it turned less bullish on the country after the onslaught of recent typhoons that had weighed on output in the third quarter.
The American banking giant trimmed its gross domestic product (GDP) growth forecast on the Philippines for 2024 to 5.8 percent, from 6 percent previously, to take into account the “weaker-than-expected” expansion in the three months through September.
If Citi’s watered-down outlook comes to pass, GDP growth in 2024 will be slower than the 6 to 7 percent expansion that the Marcos administration is hoping to achieve this year. Meanwhile, the bank kept its 2025 projection at 6 percent growth which, if realized, will settle below the 6.5 to 7.5 percent growth aspiration of the government for next year.
But Citi nevertheless believed that the slowdown in the third quarter was not indicative of a broader economic weakness, arguing that the sluggish growth was mainly because of “several temporary, weather-related factors” that had hit key sectors like agriculture and construction.
“From the supply side, agriculture and construction had been the main drags, and this was partly due to the weather effects of El Niño during the planting season and at least seven typhoons during the harvest season,” said Nalin Chutchotitham, economist at Citi. She added that classes and work suspensions because of the storms had also dragged other sectors like manufacturing and services.
“Nonetheless, we think it would be misleading to view the weaker Q3 (third quarter) expansion as the start of a slowdown as several negative factors in Q3 are one-off events,” Chutchotitham continued.
Latest data showed the Philippine economy grew at an annualized 5.2 percent in the three months through September, the weakest expansion in five quarters. That growth was slower than the 6.4-percent expansion in the second quarter, and was also below market expectations.
Better Q4?
In the first nine months, GDP growth averaged 5.8 percent. The economy will have to grow by at least 6.5 percent in the final quarter of 2024 to meet the government’s target for the year. Secretary Arsenio Balisacan of the National Economic and Development Authority had said “we remain optimistic that this growth target is attainable.”
But to achieve Citi’s muted growth projection for 2024, Chutchotitham said the economy was expected to grow at a faster clip of 6 percent in the fourth quarter, as consumption gets more support from lower interest rates and stabilizing inflation.
Better weather conditions in the remainder of the year are also seen to speed up key economic activities like infrastructure build-up.
Moving forward, she said further rate cuts by the Bangko Sentral ng Pilipinas (BSP) could bring “tailwinds” next year. Citi penciled in another quarter-point reduction of the policy interest rate in December, and additional easing cumulatively worth 75 basis points in 2025.
“Household consumption is expected to continue improving, supported by lower interest rate and improved consumer sentiment as inflation continues to stabilize,” Chutchotitham said.