Following the lower-than-expected gross domestic product (GDP) growth of 5.2 percent in the third quarter, Citi Research expects that stronger domestic demand will prompt a shift to six percent growth for the last three months.
Citi Philippines economist Nalin Chutchotitham has revised her full-year GDP growth forecast from 6.0 percent to 5.8 percent. She said this is mainly due to a weaker-than-expected quarter three caused by temporary, weather-related factors.
Despite the recent slowdown, Chutchotitham remains optimistic that the country’s economic growth will return to six percent year-on-year in the last quarter.
“Household consumption is expected to continue improving, supported by lower interest rate and improved consumer sentiment as inflation continues to stabilize,” Chutchotitham said in a statement, Monday, Nov. 18.
With the storm season nearing its end, Citi economists anticipate quicker progress on infrastructure projects in quarter four of 2024 and quarter one of 2025.
For 2025, the Citi Research team maintains its six-percent growth forecast. However, potential risks that could hinder this growth include additional rate cuts, which Chutchotitham expects a 25-basis-point cut in December, and a cumulative 75-bp cut in 2025.
“Looking ahead, the recent enactment of the CREATE MORE bill should help to lower costs for businesses through lower corporate income tax, larger deductions of electricity expenses, and simpler local tax and VAT [value-added tax] regulations.
Chutchotitham said “it would be misleading” to see the weaker growth in the thirst quarter as the beginning of a slowdown, as the negative factors in that quarter were temporary, one-time events.
According to Citi Research, the country’s agriculture and construction were major drags on growth, which were severely affected by weather events such as El Niño, typhoons, an oil spill, and disease outbreaks. Weather-related disruptions also slowed manufacturing and services.
GDP growth was weak mainly due to net exports, with goods exports declining to 3.5 percent and services slowing to 2.8 percent year-on-year.
However, domestic demand remained strong, with a rebound in household consumption following the slowing in the previous quarters.
“Recent data support the outlook that robust domestic demand is likely to be sustained,” Chutchotitham said.
Unemployment remained low in September, while overseas remittances, bank loans, and consumer loan growth all showed strong performance, supported by a recent reserve requirement reduction.
Looking ahead, Chutchotitham noted that the recently enacted CREATE MORE bill will support ongoing private sector investments and foreign direct investment (FDI) growth.
The CREATE MORE Act cuts the corporate income tax rate to 20 percent, earlier than planned, and includes a 100 percent additional deduction on power expenses for manufacturers, along with simplified tax processes. While it may reduce fiscal revenues in the short term, it aligns the tax rate with ASEAN peers and aims to lower production costs and attract foreign investments.
Further, the law extends tax incentives for strategic investments and allows firms in special economic zones to implement flexible work arrangements while retaining benefits.