By Luisa Maria Jacinta C. Jocson again Aubrey Rose A. Inosante, Journalists
Weaker-than-expected economic growth in the third quarter will allow the Bangko Sentral ng Pilipinas (BSP) to continue cutting rates, analysts said, although the outlook has been clouded by the Federal Reserve’s own actions under President Trump.
“I think the result certainly means that the cycle of reducing the monetary policy of the BSP will continue for the foreseeable future, and the reduction of 25-basis-point (bp) at least in the December meeting,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in a statement. email.
The Philippine economy grew 5.2% in the July to September period, down sharply from 6.4% growth in the second quarter and 6% last year.
This was also the weakest gross domestic product (GDP) growth in five quarters or since the 4.3% growth in the second quarter of 2023.
Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp., said the latest GDP print “helps the BSP to continue its rate cut cycle or accelerate it next year if top GDP remains slow.”
Since August, the central bank has so far lowered the target repo rate (RRP) by a total of 50 bps, bringing the benchmark to 6%.
Yours finternal policy review this year has been postponed to Dec. 19, markets are widely expecting another 25-bp cut as signed by BSP Governor Eli M. Remolona, Jr.
Treasury Secretary Ralph G. Recto said they will seek to lower rates further but are “mindful” of enteringfexpectations and actions of the US Federal Reserve.
“It is assumed that the Fed will continue to reduce interest rates, so if it does, then something will happen to us, but we are looking at the exchange rate,” he said. BusinessWorld on the sidelines of the budget hearing last week.
However, Mr. Recto said that the central bank is unlikely to introduce a major rate cut. He said the Monetary Board may maintain the rate hike, similar to the BSP chief’s signals.
Mr. Remolona previously said they would only consider rate cuts of 50 bps or more in “severe circumstances.”
“Currently, we are not in a ‘hard going’ situation (for the US and Philippine economies respectively),” said Mr. Ella.
“I think it’s an improvement in consumption in the third quarter compared to fThe first and second quarters are a good sign, we just need a few more parts of this. Moving forward, tofprices and interest are coming down, so we can expect improvement in road usage,” he added.
TRUMP’S EFFECT ON THE FED
Analysts also noted the impact of US president-elect Donald J. Trump on the actions of the US central bank and ultimately, the BSP.
“We previously thought that the weak GDP print for the third quarter would open the door to a major 50-bp rate cut in December,” Mr. Chanco.
“But the victory of Donald Trump has made that situation difficult, as our house view now is that the Fed will keep the pace of good to 25 bps given the in.fthe danger to the US caused by the tari of the President-electff proposals.”
Mr. Trump is expected to return as president in Jan. 20 after defeating current Vice President Kamala Harris in the presidential election last week.
The Fed will likely “relax gradually” next year, Mr. Chanco, “which may limit the BSP’s options for aggressive cuts.”
Mr. Remolona previously said it is possible to deliver a rate cut of 100 bps by 2025.
The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday.
Nomura Global Markets Research said in a report that Trump’s win could dampen overall economic growth amid expectations of higher inflation, weak global demand and policy uncertainty.
“We maintain our GDP growth forecast to improve slightly to 5.6% in 2024 from 5.5% last year, before rising to 6.1% in 2025, although we now see some risks from Trump’s election victory in US,” the report said.
“We still think the BSP is unlikely to be too aggressive with 50-bp cuts, in part because the substantial reserve demand ratio (RRR) cut has already provided additional easing,” it added.
Nomura expects the Philippine central bank to cut rates by a full 100 bps next year.
On the other hand, Mr Ella said that Trump’s victory is unlikely to have a major impact on monetary policy.
“With Trump winning, I don’t think there are any risks of disrupting the BSP’s easy cycle. First, the BSP will be more responsive to commodity risks or food prices,” he said.
“Second, remember that Trump likes low prices. At one point during his first term, he wanted the Fed to lower rates to the wrong level but the Fed fought this call and instead kept rates on a narrow path. “
LITTLE GROWTH
Meanwhile, the Philippine economy is unlikely to grow 6.5% in the fourth quarter to meet the lower end of the government’s target of 6-7% growth this year, analysts said.
“The momentum of growth is slowing down. Hopefully, the fourth quarter of 2024 should see good consumption support though [I] I am looking for an overall growth of 5.8%,” said Jonathan L. Ravelas, senior consultant at professional services firm Reyes Tacandong & Co., in an emailed statement over the weekend.
Of course fIn the first nine months of the year, GDP growth reached 5.8%.
Mr. Ravelas said the government should increase spending and support non-monetary ways to deal with themflation, realizing this has reduced the sustainability of consumer spending.
He said the additional 25-bp cut by the BSP should help support growth.
However, fourth quarter output is also expected to decline due to bad weather, he said.
Agriculture, forestry and fishing fell by 2.8% in the third quarter, a result of the 0.9% growth posted last year. The sector, which accounts for a tenth of the Philippines’ economic output, was hit by typhoons and typhoons in the third quarter.
Mr. Ravelas predicted that GDP will grow by 6.5% in 2025, driven by the government’s infrastructure push, the 100 bps rate cut by the BSP, and the recovery in consumption.
Meanwhile, Jesus Felipe, distinguished professor and researcher at the De La Salle University (DLSU) School of Economics, said it is “highly unlikely” that fourth quarter growth will reach 6.5%. He sees GDP growth of 6.2% in the October to December period.
“We predict growth in 2024 will be 5.9%,” said Mr. Felipe BusinessWorld in an email statement. “The only way Q4 growth can be above 6.2% (so annual growth above 5.9%) is if the government spends more.”
The economy has recovered from the pandemic, but real wages are still rising and reaching 2019 levels, he said.
“That’s why private consumption has been reduced,” said Mr. Felipe.
Meanwhile, Pantheon Macroeconomics Mr. Chanco said the latest GDP print is “a painful reality check on the stability of the Philippine economy.”
“We stuck to our full-year growth forecast of 5.4% for 2024 – implying a further decline in Q4 to 4.4% – although the Q3 print was above our consensus estimate of 4.8%,” he said in the report.
Mr. Chanco said he expects “the BSP to continue to ease the policy for the foreseeable future, as the current situation is still really strong.”
“But we’ve scaled back our expectations for this cycle’s bullishness, as the Fed may be gung-ho given the inflationary impact of President-elect Donald Trump’s proposed rate hikes,” he added.
He now sees a 25-bp cut by the BSP, from his earlier forecast of 50 bps. Next year, he sees a cut of 100 bps, down from the 150 bps previously forecast.
Jojo Gonzales, research analyst at Philippine Equity Partners, Inc. he said third-quarter GDP growth was worse than expected but kept the full-year average at 5.9%.
“We are seeing private consumer growth improve in the fourth quarter with inflation, declining unemployment, consumer confidence, and an increase in minimum wages taking ie.fended in 3Q24,” said Mr. Gonzales.
Meanwhile, Mr. Gonzales said government spending “remains low” as spending appears to have been “front-loaded” in the first half of 2024, and may ffinally in the fourth quarter.
Peter Lee U, director of the University of Asia and the Pacific’s School of Economics, said GDP is unlikely to grow by 6.5% in the fourth quarter to meet the lower end of the 6-7% target.
“Based on the previous trend, the fourth growth rate was 7.9% in 2021, 7.1% in 2022, 5.5% in 2023,” he said. BusinessWorld in a Viber message.
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