By DERCO ROSAL

The Bank of the Philippine Islands (BPI) expects the economy to continue outperforming its peers from the Asia-Pacific region, driven by anticipated strong consumer consumption, increased food supply, and stable global commodity prices.

“Inflation is expected to be more manageable in the coming year given the improving prospects of food supply. With El Niño now behind us and the potential increase in production, along with tariff reductions, rice may become more affordable,” Emilio S. Neri, Jr., BPI senior vice president and lead economist, said.

Despite the economic slowdown in China, global commodity prices are expected to remain stable, Neri also said.

BPI reported that the Philippine economy remains resilient, growing by 6.0 percent in the first half of 2024 despite challenges like severe El Niño and destructive typhoons.

“This makes the country the second-fastest growing economy in the region next to Vietnam, with consumer spending and government construction as growth engines,” Neri said.

Neri noted that consistent remittance inflows and declining unemployment have supported the growth of household consumption.

He further noted that lower inflation could enhance consumption next year, allowing households greater flexibility for discretionary spending.

While election-related spending may boost economic activity, household consumption recovery alone might fall short of the government's 2025 growth target of 6.5 percent to 7.5 percent, necessitating contributions from other sectors, Neri asserted.

The private sector construction is lagging, with spending, especially in corporate construction, not rebounding to pre-pandemic levels. 

Additionally, high vacancy rates in office buildings and weakened demand for residential projects due to pandemic continue to hinder recovery. 

“Real estate companies have been less aggressive in constructing new projects,” Neri said.

BPI stated that monetary easing by the Bangko Sentral ng Pilipinas (BSP), including cuts to the reserve requirement ratio (RRR) and reverse repurchase agreements (RRP), could boost private sector construction and other sectors such as tourism, cold storage, logistics, data centers, and the development of more industrial estates.

With a favorable inflation outlook, the bank expects the BSP to lower its policy rate to 5.75 percent in December and further down to 5.0 percent in 2025.

However, global risks, including rising protectionism and geopolitical tensions, may hinder the central bank’s ability to cut rates despite a favorable outlook, Neri said.

“In this context, aggressive rate cuts may not be prudent. A cautious approach to policy rate cuts might be needed in order to offset these risks and ensure stability in the markets,” the economist said.

As per BPI, a gradual policy rate reduction supports the BSP's long-term aim of reducing the reserve requirement ratio to 0.0 percent, enabling banks to allocate resources more efficiently and enhance lending, while also improving competitiveness against foreign financial institutions.

“Cutting the policy rate gradually gives the BSP the flexibility it needs to reach its RRR target in a shorter time frame. Gradual reduction also gives the BSP the time to rebuild its GIR, which today is not even 85 percent of the country’s total external debt,” Neri explained.