I asked PNB's Economist and Research Head Alvin Arogo about the 2024 economic results. He said the Philippine economy grew by 5.8 percent during the first 9 months of 2024 and is on track to expand at a faster rate compared to 5.5 percent in 2023. Key components that outperformed were construction and government spending. In contrast, overall household spending underperformed mainly due to weak food and non-alcoholic beverages consumption. During the 3rd quarter alone (3Q24), however, overall consumer spending showed signs of improvement. Household expenditures, which accounted for 73 percent of Gross Domestic Product (GDP), grew by 5.1 percent in 3Q24 from 4.7 percent in 2Q24. All 12 consumption segments expanded: health at 10.8 percent, restaurants & hotels at 9.8 percent, miscellaneous goods & services at 7.1 percent, transport at 6.8 percent, clothing & footwear at 5.1 percent, recreation & culture at 4.7 percent, communication at 4.4 percent, housing & utilities at 4.0 percent, food & non-alcoholic beverages at 3.2 percent, furnishings & household equipment/maintenance at 2.9 percent, education at 1.4 percent, and alcoholic beverages & tobacco at 1.2 percent.
Due to the GDP contraction during the pandemic, the year-on-year growth does not provide a complete picture of the economy's progress after the lockdowns. As such, a measure of "cumulative post-recovery growth," which is a comparison of the latest quarterly output versus the level in 4Q19, is a useful metric to gauge how much the economy has bounced back in aggregate. The 4-quarter moving average and seasonally adjusted GDP in 3Q24 were P5.48 trillion and P5.59 trillion, respectively. These were higher by 13.1 percent and 14.4 percent than their corresponding pre-pandemic levels of P4.85 trillion and P4.88 trillion. Thus, after fully recovering the output lost sometime in 3Q22, the Philippines has grown by a total of around 14 percent as of 3Q24.
Meanwhile, after averaging at 6.0 percent in 2023, inflation averaged at 3.2 percent in 2024, well within Bangko Sentral ng Pilipinas' (BSP) target of 2.0-4.0 percent. BSP's target was momentarily breached in July at 4.4 percent mainly because of the 22.7 percent rise in Meralco rates relative to the prior month, which was brought about by the "normalization" of charges following the Energy Regulatory Commission's intervention in June. Moreover, rice inflation remained in double digits until August.
Nevertheless, the inflation outlook started to look favorable in the 2nd half of the year and this gave confidence to the BSP to start the monetary easing cycle with a 25 bps policy rate cut on August 15. Thereafter, the central bank reduced the key rate by 25 bps each on October 16 and December 19. This brought the Target RRP rate from a post-pandemic high of 6.50 percent down to 5.75 percent by the end of 2024.
With regards to the Peso against the US Dollar, our currency depreciated by 4.5 percent to close at P 57.8 by the end of 2024.
In 2025, PNB Research believes that the rate of economic growth could accelerate further to 6.2 percent. The main drivers are the positive impact of low inflation and reduction in interest rates on the spending of both consumers and businesses. In particular, the sustained levels of within-target inflation should allow for strong growth for companies operating in the food & non-alcoholic beverages industry.
The forecast for inflation in 2025 is an average of three percent primarily because of lowered rice tariffs and a downtrend in Vietnam rice prices. Consequently, the BSP has the room to reduce the key policy rate further by 75 bps to 5.00 percent. However, the Peso will likely remain weak as many investors believe that the policies of President-elect Trump will result in milder easing of US policy rates (or even a long pause) because another trade war with China would be inflationary. A relatively more elevated interest rate in the US will increase the demand for US Dollars and would weaken the Peso.
At the recent John Clements Economic forum, Jaffar Al-Rikabi, World Bank's Philippine Senior Economist, said that the Philippines achieved one of the fastest growth rates in East Asia Pacific. He expects robust growth of 6.1 percent in 2025 based on private demand and public investment. Downside risks to the outlook are led by increased uncertainty surrounding the external environment (increased uncertainty with the long slump in China's property sector, intensified geopolitical tensions, etc.). He sees a need to shift reliance onto productivity and focus on human capital, which requires macro-fiscal stability and deepening structural reforms, crucial to safeguard and sustain inclusive growth.
January every year is National Bible Month. Happy Bible Month! Let's read the Bible, the Word of God.
Let's look forward to 2025 with expectant hearts of God's favors!
Ms. Tarriela was former PNB Chairman and currently PNB Board Advisor. She is a director of Nickel Asia, LTG, Finex, and the Philippine Bible Society. She founded Flors Garden in Antipolo.