Upcoming midterm elections, coupled with increased household spending, will drive the Philippine economy to 6.3 percent in 2025, Ayala-led Bank of the Philippine Islands (BPI) said.
BPI senior vice president and lead economist Emilio S. Neri Jr., in a Jan. 15 report, said this year’s economic performance will outpace that of 2024, citing household consumption as the “biggest driver.” It will also fall within the government’s target range of six to eight percent for 2025.
Neri previously forecasted a 6.1 percent growth for 2024 and 6.3 percent in 2025, citing strong customer base.
“Election spending is another tailwind that could provide a boost to the economy,” Neri stressed, noting that economic growth is “faster in election years driven by heightened economic activity fueled by election-related spending in various regions.” The election period started last week, Jan. 11 and will end on June 11, 2025.
Aside from robust household spending and election spending, Neri also factored in a low employment rate to bolster growth of the local economy.
The Philippine Statistics Authority (PSA) reported earlier that the country’s employment rate increased to 96.8 percent in November last year from 96.4 percent in November 2023, with services accounting for most of the jobs.
Neri is upbeat that this would “continue to drive the growth of household income and the expansion of the middle class.”
Looming risks
Neri said that trade barriers and anti-immigration sentiment pose risks on remittances but it will be offset by increased demand for Overseas Filipino Workers (OFWs) due to aging populations abroad.
“Remittances also have a strong track record of stability and growth even in times of crisis, as seen during the pandemic,” Neri noted, emphasizing the country’s resilience
“despite the economic slowdown in major economies.”
Another risk that has also alarmed the labor market was the emergence of artificial intelligence (AI), but Neri asserted that “a significant displacement of workers is unlikely since its current adoption remains limited and companies are still evaluating its commercial use.”
However, he also said that, in some cases, AI might improve labor productivity “for companies that can effectively utilize it,” which could further contribute to growth.
Manageable inflation
BPI also projected consumer spending to grow faster this year as inflation remains under control. In particular, this improvement was expected to be driven by discretionary spending, following a slowdown when high inflation pushed consumers to prioritize essentials.
Neri forecasted inflation to remain within the central bank’s target in the coming months, provided there are no unexpected supply shocks, but cited La Niña and global trade disruptions as risks.
He added that China’s excess manufacturing capacity could result in cheaper imports for the Philippines, helping to ease inflation.
For 2025, he expects the country’s full-year inflation to average 3.5 percent, within the higher range of the government’s target of two to four percent.
Given the subdued inflation, the Bangko Sentral ng Pilipinas (BSP) still has room to further reduce key borrowing costs this year. However, Neri said “global uncertainties may limit the extent of monetary easing.”
“We see the BSP cutting by 50 bps [basis points] as the most probable scenario this year,” Neri projected.
This will bring the key policy rate to 5.25 percent, higher against the prediction of other analysts, but Neri asserted that “rate cuts in the first half of the year appear feasible, but the latter half may bring challenges as the Federal Reserve could shift its policy stance in response to President Trump’s policies.”