Banking giant UBS AG forecasts Philippine growth of 5.9 percent for 2025, lower than its previous six percent estimate, while also expecting the central bank will further reduce both reserves’ ratio and policy rate within the year to free up more bank liquidity.
UBS Investment Bank Global Research for ASEAN and Asia economist Grace Lim, in an online press briefing Wednesday, Feb. 26, said the Philippines and ASEAN have growth resilience despite lingering global uncertainty, with domestic demand powering its continued expansion.
While its gross domestic product (GDP) forecast for the Philippines is considered modest at 5.9 percent versus the government’s target of six to eight percent, it is still an improvement from the 2024 GDP of 5.6 percent, with services exports as a continuing bright spot.
“We see an improving growth outlook in the Philippines,” said Lim. “The underlying positive growth delta is driven by domestic demand, as both investment (23 percent of GDP) and consumption (73 percent of GDP) accelerate into 2025.”
Lim noted that consumption will be supported by the “tailwinds of solid labor income growth and gradually easing food inflation which has already played out in 2H (second half) 2024.”
She further noted that the labor market is “still holding up” while the unemployment rate has remained “low and stable” at three percent.
“On the basis of gradually falling food prices and resilient labor incomes, we still expect consumption to recover gradually from Q2 (second quarter) 2025 after a period of high inflation weighed on consumer demand. In addition, we think government spending should provide some support to growth, particularly in H1 (first half of) 2025,” said Lim.
As for private investment, the UBS economist expect this to increase “as financial conditions become more accommodative.”
Lim said that with the manageable inflation environment which she believes will be contained within the government target of two percent to four percent for this year and in 2026, the Bangko Sentral ng Pilipinas (BSP) will ease its key rate further in the coming policy meetings.
“We think that BSP may cut again in April, and once more in September,” she said, for a total of 50 basis points (bps). This would bring the target reverse repurchase rate lower to 5.25 percent. During its first policy meeting for the year last Feb. 13, the BSP opted for a pause.
“(The) BSP is also slightly more advanced in the rate cut cycle compared to other ASEAN economies, with its three cuts in 2024,” she noted.
Lim also thinks the BSP is not yet done with its reserve requirement ratio (RRR) cuts for 2025. The BSP has reduced the RRR by 200 bps for big banks from seven percent to five percent effective on March 28 this year. This followed a 250 bps RRR cut last October 2024.
“That’s a positive development for banks, and more generally goes hand-in-hand with money market and financial market reforms that the BSP has embarked on, to improve liquidity management and improve the sophistication and depth of the financial markets,” she said.
Generally, Lim said private consumption will remain resilient in the Philippines, Thailand and Malaysia, amid “strong investor interest” in the region. UBS is holding its flagship OneAsean conference next week and it will be attended by over 800 institutional investors, corporates and policy makers.
The investment bank forecasts ASEAN-6 GDP growth of five percent for 2025.
“Southeast Asia is a strategic alternative for investors. Countries like Malaysia and Thailand are attracting FDI (foreign direct investments) in AI, EVs, and semiconductors as companies diversify production. Our basic premise is that intra-Asia trade would deepen as countries seek export markets and diversify sources of production, which should prove supportive for the sector,” said Lim.