UBS raises PH growth forecasts

May be fastest growth in Southeast Asia but still lower than the pre-Covid average of 6.6 percent.

Banking giant UBS AG has raised its 2024 to 2025 gross domestic product (GDP) growth forecasts for the Philippines to 5.7 percent and six percent from 5.3 percent and 5.8 percent, respectively, following the stronger-than-expected 5.6 percent expansion last year.

According to UBS Investment Bank Senior ASEAN and Asia Economist Grace Lim, the upgrade “largely reflects carryover effects from the fourth quarter of 2023, rather than a strong bounce in sequential growth momentum through 2024.”

She noted that “full year 2023 GDP growth was 5.7 percent, with domestic demand growing at around 6 percent. Whilst this is likely the highest growth rate in Southeast Asia, it is still almost 1ppt (percentage point) lower than the pre-COVID average growth rate of 6.6 percent.”

However, Lim pointed out that “on the bright side, we highlight that inflation has been trending down nicely, surprising consensus on the downside for three months in a row.”

“We had highlighted inflation might surprise to the downside if government interventions to mitigate rice price increases (including increasing imports) are successful,” she also said.

With this, UBS forecasts consumer price index (CPI) to fall further in January to February on base effects, before breaching the four percent upper bound slightly in the second quarter due to base effects.

“We maintain our forecast that BSP (Bangko Sentral ng Pilipinas will cut rates by 100bp (basis points) this year, with a 25bp rate cut at each of its four scheduled policy meetings in the second half of 2024,” said Lim.

The Philippine GDP grew by 5.6 percent year-on-year (yoy) in the fourth quarter of 2023, exceeding UBS expectations of four percent and consensus estimate of 5.2 percent. Third quarter GDP was also revised up slightly from 5.9 percent to six percent.

“For the fourth quarter itself, the surprise was stronger household consumption, which rose by 2.8 percent quarter on quarter (5.8 percent yoy), about twice as fast as our forecasts,” noted Lim.

She added that “there was also a major swing from inventories, which added 0.2ppt to GDP growth in the fourth quarter (versus -2.1ppt drag in the third quarter).”

On a sequential basis, GDP rebounded by 2.1 percent quarter on quarter – from an annualized 8.8 percent — slowing from the 3.8 percent surge in the third quarter. — James A. Loyola