PH economy needs more punchy fiscal, monetary policy — ANZ

Makati Skyline | PHOTO: JMS

Fiscal and monetary policies in four ASEAN economies, including the Philippines, still lack the necessary firepower to supercharge growth to a level that can withstand external headwinds, ANZ Research said.

In a commentary, ANZ said government spending plans in the Philippines, Indonesia and Malaysia showed “negative fiscal impulses,” with the exception of Thailand where there is strong support for consumption via higher state expenditures on social services.

Meanwhile, interest rates in these Asian economies would likely fall at a slower pace to match the “shallow” easing cycle in the United States (US), which may ”constrict” the ability of monetary policy to stimulate economic growth.

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”As part of ongoing efforts to consolidate public finances after a substantive relaxation during the pandemic, policymakers will stick to conservative fiscal policies this year,” ANZ said.

”We believe a key gauge of efficacy in 2025 will be the ability of fiscal policy to stimulate household consumption,” it added while noting that the postpandemic rise in wealth gap had adversely impacted lower and middle income families that have higher propensity to consume.

The Marcos administration is aiming for a 6 to 8 percent gross domestic product (GDP) growth this year. To do that, the government is eyeing disbursements amounting to P6.18 trillion, or equivalent to 21.5 percent of GDP.

But ANZ said the need to avoid a breach of the P1.5-trillion budget deficit limit for 2025 might hold back government spending from making bigger contributions to economic growth.

The Bank noted that while there were increases in state spending on education and other social areas in the Philippines that can boost consumption, these will be “outweighed” by the implementation of new taxes that were postponed in 2024. This is because such taxes may temper household spending on certain commodities.

”On the balance, the 2025 projected fiscal stance will not offer much resilience against the emerging macro headwinds. Relaxing this stance will be politically challenging and time consuming,” ANZ said.

Shallow rate cuts

On monetary policy, ANZ said the Bangko Sentral ng Pilipinas (BSP) might match the slower pace of rate cuts by the US Federal Reserve, which could restrain the support from the ongoing easing cycle.

But ANZ said the BSP is “less impacted” by the moves of the Fed compared to other ASEAN economies because of its higher tolerance for a weak currency.

As it is, the BSP last year delivered a total of 75-basis point (bp) cut to the key rate that banks typically use as a guide when pricing loans.

And Governor Eli Remolona Jr. had hinted at additional easing moves for this year as financial conditions are still “somewhat tight”, even floating the possibility of another rate cut at the Feb. 20 meeting of the Monetary Board.

Overall, ANZ said the need to rebuild the pandemic-hit savings of households is the “key constraint” to the ability of monetary policy to help the economy, as consumers might delay any big-ticket purchases while they fix their balance sheets.

“Against this backdrop, it appears that drastically and not marginally lower borrowing costs are necessary to entice households and businesses to step up spending,” it said.