Local investment house Unicapital Group sees the Philippine economy growing by 6.3 percent next year, with inflation falling to 3.1 percent, which is expected to propel the Philippine Stock Exchange Index (PSEi) to the 8,000 level.
While the group holds a positive outlook for 2025, it acknowledges potential challenges. "There are opportunities, but not without risks associated with external factors such as the new US administration's policies in 2025," Unicapital noted.
Unicapital projects the inflation rate to fall below the Bangko Sentral ng Pilipinas' (BSP) four percent target ceiling and predicts gross domestic product (GDP) growth to reach 6.3 percent, the highest since 2018, leading GDP growth in Southeast Asia.
"We are confident that there are opportunities for the Philippines despite the risks," said Unicapital Group President and CEO Jaime Martirez.
"We have seen similar circumstances in the past, but with the government stepping up to ensure measures are in place to boost the equity market, we believe everything will fall into place and yield positive results," he added.
Martirez highlighted the timely signing of the CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating Economy) law, which further institutionalizes actions to enhance corporate profitability.
The law's incentives, including tax reductions and increased foreign ownership limits, are likely to drive both domestic and foreign capital inflows, particularly into growth sectors.
Unicapital anticipates Filipino households will have more disposable income in the coming year with easing inflation and businesses benefiting from tax breaks under the CREATE MORE law. The firm forecasts inflation at 3.1 percent, driven by expectations of lower global oil prices.
Moreover, the CREATE MORE law's provision to cut the corporate income tax (CIT) rate to 20 percent from 25 percent, while providing VAT zero-rating on local purchases and essential services for export-oriented consumer companies, will further reduce the tax burden.
This will enable companies to create more jobs and stimulate economic activity. Lower inflation and increased employment will ultimately drive growth in household spending, a key growth driver for consumer companies.
However, Unicapital believes that while policy rate cuts should continue, the pace remains uncertain amid possible inflationary pressures from US protectionist policies under the incoming administration.
The Philippine peso may weaken against the US dollar as the new administration could lead investors to favor US assets. Downward pressure on oil prices is also expected due to potential trade frictions leading to increased US production and weakened demand.
Unicapital sets a bottom-up index target of 8,000 for the PSEi, implying a 14 percent year-on-year gain from the estimated 7,000 level by the end of 2024. Further policy rate easing is expected to boost corporate earnings through a lower cost of capital and increased consumer spending. This is supported by the anticipated further reduction in policy rates by the BSP.
However, downside risks include prolonged elevated interest rates and escalating geopolitical tensions that could disrupt trade supply.