More easing likely as PH economy set to ‘struggle,’ says think tank

A tight fiscal policy and weakening flows of remittances would weigh on the economy this year, although additional easing moves by the Bangko Sentral ng Pilipinas (BSP) and softening inflation could help buttress growth, Capital Economics said.

In a commentary, the London-based think tank said the country’s gross domestic product (GDP) is expected to expand 5.1 percent in 2024 which, if realized, would fall short of the 6 to 7 percent growth target of the Marcos administration.

The economy is expected to ‘remain weak” over the next quarters, it added, as it flagged headwinds hurting consumption—which historically accounts for about 70 percent of GDP—as well as a limited fiscal space that could crimp the government’s contribution to growth.

For 2025, Capital Economics projected growth to settle at 5.5 percent, still below the government’s 6.5 to 7.5 percent goal.

“On the plus side, lower interest rates (the central bank began its easing cycle in August) and falling inflation (which should boost household incomes) should provide some support to consumption,” the think tank said.

”However, this is likely to be offset by slower growth in remittances and weaker export demand. Fiscal policy is also likely to hold back growth. The government is aiming to reduce government debt, which shot up during the pandemic, to more sustainable levels,” it added.

At its Aug. 15 meeting, the policy-making Monetary Board (MB) slashed the benchmark rate by a quarter point 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.

Weeks after that decision, government data showed inflation slowed to 3.3 percent in August, easing back to within the 2 to 4 percent target range of the BSP. State statisticians had said rice price inflation may fall to single-digit level in September due to reduced tariffs on the staple grain, which can help tame the overall growth of prices in the coming months.

Meanwhile, the BSP cut took into account 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.

With growth set to “struggle” and inflation likely to remain low, Capital Economics said further easing is likely over the remainder of this year and in the first half of next year.

”We expect inflation to remain subdued over the coming months, helped by a combination of weak growth, beneficial base effects and government efforts to boost the supply of agricultural goods,” it added.