The Philippines' below-goal and slowing near-term economic growth would be unlikely to gain from China's massive stimulus due to meager exports to the mainland, according to Deutsche Bank Research.
Deutsche Bank's global macro forecasts released on Tuesday, Oct. 15, showed projected gross domestic product (GDP) growth of 5.8 percent for the Philippines in 2024, below the government's six- to seven-percent goal but above last year's 5.6 percent.
For 2025, the bank expects a slower 5.6-percent GDP expansion even as Philippine economic managers are eyeing a faster 6.5 to 7.5 percent.
It forecasted downward consumer price index (CPI) inflation averaging 3.5 percent this year and a lower three percent next year, within the targeted two- to four-percent band supportive of economic growth.
In its Asia Corporate Newsletter for the fourth quarter of 2024, Deutsche Bank Research noted that the Philippines and Indonesia have "encountered a moderate slowdown in economic momentum" during the last three months.
"Across the region only China's and the Philippines' growth momentum remained below the average levels of the past decade; however, recent stimulus measures by China may lead to an improvement," it added.
Unfortunately for the Philippines, India and Indonesia, these three countries "export relatively few consumer goods to China, and we believe they would likely benefit the least," Deutsche Bank said.
On the other hand, Malaysia, Singapore, South Korea and Thailand are poised to become the biggest beneficiaries of an anticipated Chinese consumption rebound, the bank said.
Those four countries' currencies also have the strongest beta to the Chinese renminbi, it noted.
For its part, the Philippine peso has "some room to outperform, but only in the seasonally stronger period of the fourth quarter," Deutsche Bank Research said.
This possible peso appreciation against the US dollar would mainly be due to the flurry of economic activities and consumer spending leading to the Christmas holiday season, which historically receives the biggest inflows of cash remittances from Filipinos working and living abroad.
"Renewed nominal effective exchange rate weakness in recent weeks has created space for USD/PHP to move lower in case of US dollar weakness. However, the risks are also symmetric to the upside if the dollar were to strengthen, particularly if this occurs due to higher tariff risks being priced in," the bank said.
As such, "any move lower in USD/PHP, if it materializes, is likely to be limited," as Deutsche Bank cited the lack of cushion from the Philippines' balance-of-payments (BOP) position.
"Customs trade deficits are too large and prevent a sustainable basic BOP surplus in the medium term, and especially in the first half of 2025. Moreover, capital goods imports are starting to pick up as long-delayed very large infrastructure projects are finally getting into their construction phases (from right-of-way acquisition modes)," it explained.
The Philippines is a net importer of the goods it consumes, hence spends more dollars to cover imports, including of capital and other equipment to roll-out the Marcos Jr. administration's ambitious "Build Better More" infrastructure program.
As such, Deutsche Bank Research forecasted annual deficits in the current account, or net dollar earnings, equivalent to 2.9 percent of GDP in 2024, although seen narrowing to 2.4 percent in 2025.
The Philippines ended 2023 with a current-account deficit equivalent to 2.6 percent of GDP, which together with the yawning budget deficit wrought the "twin deficits" dragging the peso.
On the monetary policy front, Deutsche Bank sees the Bangko Sentral ng Pilipinas (BSP) remaining dovish, such that "while local investors expect another 125 to 175 basis points (bps) of cuts in this cycle, we believe more can get priced in if historical real rate levels are revisited."
The BSP started its easing with a 25-bp cut in the key interest rate to 6.25 percent last August. Another possibly moderate reduction is widely expected when the Monetary Board decides on policy stance this Wednesday, Oct. 16.
"Indeed, real bank loans have been accelerating even before the recent rate cut," Deutsche Bank Research noted. The World Bank earlier cited that lending to consumers and industries have sustained growth since end-2022 and end-2023, respectively.
However, "we worry the savings-investment balance will deteriorate further down the road," Deutsche Bank said, referring to the Philippines' lingering current-account deficit.