While the Philippine peso could fall beyond the 60:$1 level when US President-elect Donald J. Trump returns to the White House in 2025, economic growth is expected to benefit from election-related spending next year, according to Singapore-based United Overseas Bank (UOB).
"Worries about Trump's tariff policy have triggered a flight to the US dollar in the fourth quarter of 2024 and in turn putting pressure on the regional currencies including the Philippine peso," UOB said in its Quarterly Global Outlook report for the first quarter of 2025.
As of end-November, the peso depreciated against the US dollar by 5.3 percent quarter-to-date to the 59:$1 level, UOB noted.
"In 2025, the peso is likely to be on the defensive, taking direction from Trump's tariff policy as it takes shape as well as the Chinese yuan. A faster pace of rate cuts by the Bangko Sentral ng Pilipinas (BSP) relative to the Fed in 2025 is likely to weigh on the peso as well," it added.
UOB projected the BSP to lower the key interest rate by a total of 100 basis points (bps) in 2025 following last Dec. 19's 25-bp cut to the current 5.75 percent, and then reduce by another 25 bps in 2026 -- the most aggressive monetary policy easing it expects in the region.
A quarterly 25-bp cut next year shall bring the overnight reverse repurchase (RRP) rate to 4.75 percent by end-2025, alongside UOB's expectations that headline inflation would average a lower 2.8 percent next year than its estimated three percent this year.
As such, UOB forecasted the local currency to test the record-low level of 59.33:$1 during the near term "as external headwinds build."
For UOB, the peso would hit 59.5:$1 in the first quarter of next year; the 60 level during the second quarter; further weaken to 60.5 by the third quarter; before settling at 60:$1 in the fourth quarter of 2025.
While the peso falls, UOB expects the Philippines' gross domestic product (GDP) growth to pick up to six percent next year—the lower end of the government's six- to eight-percent target range.
"The national government is expected to boost public spending and speed up completion of some infrastructure projects in the near term as it gears up for the midterm elections on May 12, 2025," UOB explained.
"Campaign spending will be a source of additional growth for the local economy in the first half of 2025 while the year-ago low base effects and broader transmission of monetary policy easing since August 2024 will provide a fillip to the growth outlook in the second half of 2025," it said.
Next year's GDP growth pace is seen faster than the 5.5 percent anticipated by UOB for this year—matching last year's rate, but below the government's downscaled six- to 6.5-percent goal.
Following the end-September real GDP growth averaging 5.8 percent, UOB forecasted fourth-quarter expansion at only 4.7 percent year-on-year.
"Domestic economic activities may continue to face challenges from external uncertainties and adverse weather conditions going forward. Policy uncertainties from the US President-elect Donald Trump and heightened geopolitical conflicts are key downside risks at play for now, which will impact the global economy and financial markets," UOB warned.
"On that note, domestic fiscal and monetary policy support are essential to sustain the overall local growth momentum," UOB said, referring to the record P6.352-trillion national budget for 2025, plus a narrower budget deficit equivalent to 5.3 percent of GDP next year—as targeted by the Marcos Jr. administration—from an estimated 5.6 percent this year.