Singapore-based United Overseas Bank (UOB) expects the Philippine economy to grow as targeted this and next year while inflation risks and interest rates ease.
In its quarterly global outlook report for the fourth quarter of 2024, UOB forecasted the Philippines' gross domestic product (GDP) to expand by six percent this year and a faster 6.5 percent next year — improvements from last year's disappointing 5.5 percent expansion.
Both growth forecasts are at the lower end of the government's goal to hike GDP by six to seven percent in 2024 and 6.5 to 7.5 percent in 2025.
Following first-half GDP growth of six percent, UOB said, “We expect this momentum to hold up in the second half of 2024 and into 2025."
UOB projected a similar six-percent average economic expansion in the second half of this year, although slowing to 6.1 percent year-on-year in the third quarter and 5.8 percent in the fourth quarter compared to 6.3 percent in the second quarter, which was the fastest growth in five quarters.
UOB's optimism stems from "an expected monetary policy easing by the Bangko Sentral ng Pilipinas (BSP), moderating inflationary pressure, continuation of targeted fiscal policy support from the national government and persistent trade recovery in tandem with the ongoing global tech upcycle."
"We now anticipate the BSP to deliver back-to-back rate cuts in the fourth quarter of 2024 with 25 basis points (bps) each in the two remaining Monetary Board meetings for the year on Oct. 17 and Dec. 19," UOB said.
Such a move would slash the policy rate to 5.75 percent by yearend from 6.25 percent at present. The BSP started its monetary easing with a 25-bp cut in key interest rates last month.
UOB previously anticipated a cut of only 25 bps in the entire fourth quarter, but it now expects the BSP to go in sync with aggressive monetary policy easing by the US Federal Reserve and other banks globally amid downward inflation.
The bank projected inflation to average 3.5 percent this and next year, within the government's two- to four-percent target range of manageable annual price hikes conducive economic growth.
According to UOB, risks to the Philippine economy leaned to the downside.
"Key downside risks could emanate from adverse weather conditions, rising geopolitical tensions in the Middle East and softer-than-expected global economic growth," it said.
Stronger GDP expansion would likely spill over to better employment prospects, with the jobless rate seen by UOB at a slightly lower 4.5 percent in both 2024 and 2025 than 2023's 4.6 percent.
UOB also forecasted smaller current account and fiscal deficits in these two years.
The deficit in current account or net dollar earnings is estimated by UOB to narrow to 2.3 percent of GDP this year and further shrink to 1.8 percent next year, from 2.6 percent last year.
The budget deficit is expected to get smaller to 5.1 percent of GDP in 2024 and then to 4.1 percent in 2025, from 6.2 percent in 2023.
UOB noted that as of mid-September, the Philippine peso appreciated by 4.9 percent quarter-to-date against the US dollar, although year-to-date depreciation stood at 0.9 percent "partly due to narrowing interest rate differentials after the BSP cut its policy rates ahead of the US Fed in August."
The peso is anticipated to end this year at 55.8 versus the dollar, then strengthen to 55.3 against the greenback in the first quarter of 2025, 54.8:$1 in the second quarter, and 54.3 against the US dollar in the third quarter of next year.
"In the fourth quarter of 2024, we expect the Philippine peso to consolidate its gains from the third quarter as investors weigh risks such as China's bumpy economic rebound and uncertainties of the November US elections," UOB said.
"In 2025, USD/PHP is likely to weaken anew again on broad-based US dollar weakness as the Fed's easing cycle goes into full swing. However, we note that the dovish slant from the BSP and the country's twin deficits are expected to cap the appreciation pace of the Philippine peso," UOB added, referring to the prevailing budget and current account deficits.