Weak Philippine growth to persist in 2024

Capital Economics


Think tank Capital Economics has warned that the stalling Philippine economic growth would persist this year, even as easing inflation and expectations of more interest rate cuts by the central bank will improve prospects next year.

While the country’s gross domestic product (GDP) grew 6.3 percent year-on-year in the second quarter of 2024—the fastest in five quarters, Capital Economics pointed out in an Aug. 30 report that the increase in economic output slowed to 0.5 percent from April to June compared with January to March's 1.1-percent quarter-on-quarter rise.

Capital Economics senior Asia economist Gareth Leather and assistant economist Ankita Amajuri noted that the lower quarter-on-quarter growth during the April-to-June period came on the back of drops in exports and household consumption.

"We expect this weakness to persist in the near term," Capital Economics said.

Based on Capital Economics' estimates, quarter-on-quarter GDP growth would remain below one percent in the third and fourth quarters of 2024.

To recall, the Philippines' economic output grew by 2.8 percent quarter-on-quarter during the third quarter of 2023, before slowing to 1.9 percent in the fourth quarter of last year.

As such, annual GDP growth was estimated by Capital Economics at 5.5 percent this year, matching last year's performance yet below the government's six percent to seven percent goal.

For Capital Economics, a combination of weak economic growth and downward headline inflation would force the Bangko Sentral ng Pilipinas (BSP) to further slash the key interest rate to end 2024 at 5.75 percent.

"The BSP kicked off its easing cycle with a 25 basis points (bps) cut in August. With inflation set to fall and growth struggling, we expect another 50 bps of cuts this year," the think tank said.

The Monetary Board, the BSP's top policy-making body, will again tackle interest rates on Oct. 17 and Dec. 19.

On top of the total of 75 bps in interest rate cuts expected by Capital Economics this year, the think tank anticipates the BSP to cut by another 100 bps next year for the overnight lending rate to end 2025 at 4.75 percent.

Capital Economics said the year-on-year rate of increase in prices of basic commodities will "likely drop back sharply over the coming months on the back of beneficial base effects."

In a separate report also released on Aug. 30, Leather projected August inflation at 3.5 percent, lower than a month ago's 4.4 percent and a year ago's 5.3 percent.

The Philippine Statistics Authority (PSA) report on the August consumer price index (CPI) will be out on Thursday, Sept. 5.

Capital Economics sees inflation falling to an average of 3.5 percent this year from 6 percent last year—the highest annual rate since the 8.2 percent recorded in 2008 at the height of the global financial crisis.