Singapore-based DBS Bank is bullish that downward inflation and interest rates would bolster consumer spending as well as private investments in the Philippines even as economic growth would likely slow in the next two years.
DBS Bank projects an average growth of 6.0 percent for this year, but meeting the government’s six to seven-percent full-year target may be challenging.
To recall, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan previously noted that quarterly growth must reach at least 6.5 percent to land within the goal.
In a year-ahead report titled Defying the Trend: Economic Outlook and Market Strategy for 2025, DBS’ growth trajectory graph showed that the projected six percent average growth for this year could mark the peak of the country’s economic performance from the pandemic through 2026.
Still, “growth momentum is expected to get a hand from easing inflation into 2025, which will provide relief to household purchasing power and a cut in rice tariffs which lowers the staple’s prices,” said Radhika Rao, DBS Bank senior economist and executive director.
From six percent average inflation last year, Rao expects it to settle at three percent this year, still comfortably within the government’s two to four percent target band.
Looking ahead, she forecasts a continued slowdown in consumer price increases, with inflation easing to 2.6 percent in 2025 and 2.4 percent in 2026.
Alongside easing inflation, Rao expects a 25 basis-point rate cut in late 2024 and another 100 basis points in 2025. This will bring borrowing costs to 4.75 percent, which are projected to hold steady through 2026.
“Lower borrowing costs will also be a positive for the private sector’s financing needs, including working capital requirements,” Rao said in the report.
In terms of investments, Rao stated that the country is set to boost private sector investments through the CREATE MORE Act which will address framework inconsistencies in the management.
Rao also noted that while foreign direct investment (FDI) inflows have remained steady, the impact of these reforms and the China+1 strategy is yet to significantly drive foreign investments.