Moody’s Analytics forecasts the Philippine economy will grow by 5.8 percent this year on the back of strong domestic demand and inflows from remittances.

Based on its latest Asia Pacific outlook report, it is also projecting the country’s gross domestic product (GDP) to remain at this level of 5.8 percent in 2025 before expanding by 6.3 percent in 2026.

Moody’s Analytics’ 2024 and 2025 GDP forecasts of 5.8 percent growth is lower than the government’s 6.5 percent to 7.5 percent target for this year and 6.5 percent to eight percent for 2025 until 2028.

For this year, Moody’s Analytics gave the Philippines the third highest growth projection in the region that included India, China and Japan. After India and Vietnam’s six percent, the country is among the top three at 5.8 percent.

For 2025, it moved back to the second highest expected GDP growth, again after India, while for 2026, it remains as the top three economies with the best growth prospects in the region.

The research firm, which is subsidiary of Moody’s Corp. and is a separate unit from Moody’s Investors Service, noted though that the Philippines reported the second highest GDP growth in 2023 of 5.6 percent, second only to India’s 7.2 percent but higher than China’s 5.3 percent.

“In recent performance, most economies in the region grew in the fourth quarter. In terms of quarterly GDP, there was clear improvement from earlier in the year. The Philippines and Taiwan enjoyed rapid growth at year’s end,” said Moody’s Analytics, adding that “in the Philippines, the post-pandemic recovery continues, helped by record overseas remittances in value terms last year that fueled strong domestic demand.”

It also added that for 2024, there is generally positive expectation of a tamer inflation that “should allow the region’s central banks to lower interest rates in the second half and provide some spark to spending and investment.”

“Inflation has fallen from peak rates that occurred 12 to 18 months ago and for the most part are entering central banks’ target ranges. Yet they are mostly near the top of those ranges and, in some cases, stopped improving in December or January,” it said.

For the Philippines, Moody’s Analytics projects inflation to come down from six percent in 2023 to 3.4 percent this year, before settling at three percent in 2025 and 2026. The inflation forecasts are within the government’s target range of two percent to four percent.

“After a soft start, the region will strengthen in the second half of 2024,” said Moody’s Analytics. It noted that most Asia Pacific economies ended 2023 with soft GDP growth.

“Weak global trade is adding to near-term uncertainty (while) monetary policy interest rates are likely to remain at peak through mid-2024,” it said.

It further noted that the “high-value and high-performance exports such as semiconductors with high efficiency and speed will lead the way for trade recovery.”

“As we enter 2024, Japan may well be in recession because of paltry domestic demand, and China is struggling to gain traction while its property sector is on its knees and consumer demand is modest at best. And yet the Philippines, Indonesia, Vietnam and Taiwan have shown remarkable resilience thanks to electronics exports, relatively strong domestic demand, government spending, and remittances,” said Moody’s Analytics.

Based on the Bangko Sentral ng Pilipinas’ (BSP) February 2024 Monetary Policy Report (MPR), it said the Monetary Board’s cumulative 450 basis points rate hikes will impact growth this year. However this will be offset by structural reforms.

“While the projected impact of the BSP’s policy rate adjustments is likely to peak in 2024, growth in the medium term could also be supported by structural reform measures that could enhance investment climate as well as economic sentiment in the country,” said the BSP. This was earlier reported in the previous MPR (November 2023).

The BSP also said that domestic economic activity is seen to remain intact over the medium term. “The projected GDP growth path is supported by the improved global growth outlook and decline in global crude oil prices, tempered in part by the lagged impact of the policy rate adjustments,” it said.

The BSP has a lower GDP projection path than the official government goal of 6.5 percent to 7.5 percent for 2024. It expects growth to be below this target.

“The economy is projected to operate slightly below its potential,” said the BSP.

For the moment, the hawkish BSP has a hold monetary policy stance and has kept its benchmark rate unchanged at 6.5 percent since an off-cycle rate hike last Oct. 26, 2023.