Economy loses momentum amid inflationary pressures


By DERCO ROSAL

While the majority of expectations nod to an uptick in October inflation, economists surveyed by Manila Bulletin hold mixed forecasts for the Philippines’ third-quarter 2024 economic performance, noting both growth opportunities and possible risks ahead.

Following the four-year low September inflation rate at 1.9 percent, private-sector economists monitoring the Philippines anticipate inflation to have surged in October, ranging between 2.3 percent and 2.5 percent, due to increased food prices and higher fuel and electricity costs.

Despite this higher expected rate, the majority (eight) of the nine forecasts for last month’s headline inflation fall within the lower half of the government's two- to four-percent target range. 

The Philippine Statistics Authority (PSA) will release October’s consumer price index (CPI) report on Tuesday, Nov. 5.

September print lowest in 2024

Chinabank Research expects October print to have settled at 2.3 percent due to rising prices for vegetables, fruits, fish, and eggs, despite declines in rice and meat prices, alongside higher domestic fuel and water rates in October.

“However, these upward price pressures were partly tempered by reductions in electricity rates in many parts of the country,” Chinabank Research economists said.

Both Germany-based Deutsche Bank and Sarah Tan, economist at Moody’s Analytics, noted that this reacceleration is influenced by a lower base effect. 

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, predicts a 2.5 percent uptick, citing factors as did Chinabank’s, stressing that “the impact of Typhoon Kristine may still have to be felt this November round.”

September’s inflation rate of 1.9 percent could be the lowest this year, Michael Ricafort,  Chief Economist at Rizal Commercial Banking Corp (RCBC) said, citing a weaker peso, typhoon damage, and temporary price spikes.

Still, he expects the inflation to stay around two percent for the remainder of 2024, “though some seasonal pick up in prices/inflation expected towards the Christmas holiday season amid increased demand/spending.” 

However, as the holiday rush subsides after New Year, Ricafort anticipates the eventual decline in inflation.

“Thus, inflation is expected to remain within the BSP’s target range of [two to four percent] that would help justify further Bangko Sentral ng Pilipinas (BSP) rate cuts that could match future Fed [U.S. Federal Reserve] rate cuts, going forward,” Ricafort added.

Growth below the trend

While inflation is expected to bounce, economists forecast that the country’s gross domestic product (GDP) growth will slow to around five percent, largely due to weakening domestic demand and global economic conditions.

Deutsche Bank provided the lowest growth forecast of 5.4 percent, which is significantly lower than the second quarter’s 6.3 percent rate. 

“Private consumption expenditure is likely to see a pickup in growth as household

purchasing power recovers alongside falling inflation, although it would remain

below trend” as it will be hindered by weakened government spending and rising unemployment, the multinational investment bank explained.

On the contrary, Ser Percival K. Peña-Reyes, Director at the Ateneo Center for Economic Research and Development, provided the highest growth forecast and the most optimistic outlook, at 6.5 percent.

To Peña-Reyes, this upward economic growth is fueled by sectors such as construction, transportation and storage, as well as accommodation and food services.

Generally, low forecasts fall between 5.4 to 6.2 percent, with Chinabank Research citing weak household consumption and a growing trade deficit, despite gains in construction and services, while agriculture struggled from adverse weather.   

Other forecasts within this range came from Asuncion, Chinabank Research, and Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. and managing director of e-Management for Business and Marketing Services. 

Tan, with a 5.7 percent forecast, said that while the economy is driven by government spending and private investment, private consumption remains weak due to recent rate cuts and declining exports amid reduced tourist arrivals. 

Further, a Trump win in the U.S. presidential election could lead to a 10 percent universal tariff, posing a significant trade risk for the Asia-Pacific region, Tan noted.

However, retaliation in the Philippines will be limited as it relies heavily on the U.S. for trade and security through defense partnerships,” she explained.

Looking ahead, Chinabank Research anticipates steady inflation, reduced interest rates, and the “robust labor market to support a recovery in consumption.”

“We also expect a boost from election-related spending leading up to next year’s midterm elections,” it added. 

Meanwhile, Gareth Leather, Capital Economics senior Asia economist said that policy rate cuts and “falling inflation will likely support domestic demand over the coming quarters.” 

“However, if global demand weakens as we expect, then export growth will slow. In addition, slower growth in remittances and tighter fiscal policy will likely dampen economic growth over the coming quarters,” Leather also said

Thus, he expects the GDP growth of 5.1 percent this year and 5.5 percent in 2025, both of which remain lower than the consensus forecasts.

Among the largest economies 

Although the country’s growth has been in constant fluctuation, some economists believe in its potential.

“The Philippines has been and would still be among the fastest growing economies in Asia,” Ricafort said, citing its demographic advantage with a large, young workforce—over 50 million of its 113 million people are of working age, with an average age under 25.

Meanwhile, UK-based banking giant HSBC said the Philippines' economy is benefiting from two decades of reform, demographic growth, digital job creation, and strong service exports, positioning it for sustained economic expansion.

“All this means the Philippine economy is expected to grow in size and influence,” Aris Dacanay, ASEAN economist at HSBC said.

Dacanay said the country is likely to rise from the 33rd to the 28th largest economy by 2029, offering strong investment potential. 

With one of the lowest debt levels in ASEAN, the country has already drawn significant investor interest, ranking as the region’s second-highest foreign direct investments (FDI) recipient relative to GDP in 2018-2019, Dacanay further said.

“This may be the case again in the next five years, with the Philippines recording the highest FDI approvals in its history,” Dacanay stressed.