By Luisa Maria Jacinta C. Jocson, A reporter
PHILIPPINE ECONOMIC GROWTH may fall below 6% in 2025 amid a “softer” recovery in domestic demand and expectations of a widening trade deficit, Bank of America (BofA) said.
BofA Securities Philippines economist Jojo Gonzales said they forecast that the Philippines’ gross domestic product (GDP) will grow by 5.9% in 2025.
This will slightly exceed the government’s revised growth target of 6-8% next year.
The economy grew a slower-than-expected 5.2% in the third quarter, its weakest growth in five quarters.
In the nine-month period, GDP growth reached 5.8%, slower than the 6% published last year.
Earlier this month, the Development Budget Coordinating Committee adjusted its economic growth targets to address “evolving domestic and global uncertainties.”
“While we expect a slight recovery in private consumption and investment over the next year, government spending growth is likely to be muted, and a wide trade deficit is expected,” said Mr. Gonzales told BusinessWorld by email.
In the third quarter, government spending growth slowed to 5% from 11.9% in the previous quarter.
The latest data from the Philippine Statistics Authority (PSA) showed that the country’s trade deficit reached $5.8 billion in October, the largest gap in two years.
Meanwhile, BofA said it expects inflation to average 3% next year, within the central bank’s target of 2-4%.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to drop to 3.3% in 2025.
Headline inflation reached 3.2% in the 11-month period, according to the latest data from the PSA.
“A weak peso remains a risk in this forecast, although soft oil prices may provide a cushion to offset the impact of a weak currency,” Mr. Gonzales.
BofA expects the dollar’s strength to continue next year, while the peso may breach the P61 mark.
“The US dollar will remain strong in 2025, and our forecast for the end of 2025 is P61,” said Mr. Gonzales.
So far this year, the peso has hit a record low of P59-per-dollar three times.
BSP Governor Eli M. Remolona, Jr. earlier said they are watching the peso closely and have been more active in the markets than usual.
The BSP had to intervene in small amounts in the past few months amid a strong dollar after Donald J. Trump won as US President.
Meanwhile, BofA estimates that the central bank will deliver rate cuts of up to 75 basis points (bps) next year.
“This will reduce the policy rate to 5% (by the end of 2025),” said Mr. Gonzales.
Last week, the Monetary Board cut borrowing costs by 25 bps in its last annual policy review, bringing the key rate to 5.75%.
The central bank has cut rates by 75 bps this year since it began cutting rates in August.
Mr. Remolona previously said that delivering a rate cut of 100 bps next year could be “too much.”
The central bank will likely continue to cut rates in “baby steps” as it continues to closely monitor inflation risks, the BSP official added.
“We also expect the Fed rate to stabilize at 4% – one cut in December and two cuts in the first half of 2025,” Mr Gonzales said.
The Fed continued tapering in December after a period of strong rate hikes but hinted at fewer cuts in 2025. Investors are now focused on whether the US central bank will gradually cut rates next year, Reuters reports.
While Friday’s US inflation reading eased some concerns about the pace of tapering next year, markets are still pricing in around 35 bps of tapering in 2025.
US investors are preparing for a slew of changes in 2025 – from spending and deregulation to tax policy – that will jolt markets as Mr. Trump returns to the White House in January.
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