Atin Ito First Filipino Community Newspaper in Ontario
S&P Global Ratings slightly revised its 2024 economic growth forecast for the Philippines to 5.9 percent from its earlier estimate of six percent, on continuing headwinds from last year’s high inflation and low investments, but said the country will perform relatively well versus regional peers.
For 2025, the credit rating agency raised its real gross domestic product (GDP) projection to 6.2 percent versus the six percent forecast in a Jan. 30, 2024 note that was presented along with its 2024 Philippine banking outlook report.
In a press briefing Wednesday, March 27, where S&P Global updated its assessment for the banking sector, GDP, inflation and interest rates’ outlook, it said the baseline GDP forecast of 5.9 percent is still one of the highest in the region. They have announced the 5.9 percent growth outlook before in late 2023 but revised it up to six percent in January.
“Although low relative to the Philippines’ recent history (in growth rates) this is actually one of the higher growth rates in the region. Our outlook for the Philippines is that it is doing relatively well compared to the region,” said S&P Global senior economist Vince Conti.
The 5.9 percent GDP growth forecast is lower than the government’s target of 6.5 percent to 7.5 percent. Conti said the two main headwinds keeping the GDP growth number low for 2024 is the 2023 high inflation which still weigh on consumption since last year’s prices “would have eaten into disposable income and savings.”
The second headwind is “deceleration of investments last year which we continue to expect to decelerate even further this year due to the lagged impact of the rate hikes and investments will also be weighed by slower consumption.”
S&P Global forecasts inflation will drop to 3.4 percent this year from six percent in 2023, and to 3.2 percent in 2025.
“(Low inflation) gives BSP (Bangko Sentral ng Pilipinas) some leeway to be able to consider starting to cut rates,” said Conti.
He added, “we’re expecting 75 basis points cuts by the BSP cumulative by the end of this year and really starting only in the second half of the year.”
Currently, the BSP’s target reverse repurchase (RRP) rate or the policy rate is 6.5 percent. The credit rating agency expects the BSP will bring down the RRP rate to 5.75 percent this year and further cut it to 4.25 percent by 2025.
Conti said the BSP is not expected to move or cut its policy rate ahead of the US Federal Reserve, thereby this will be a stabilizing factor the peso-US dollar exchange rate.
Since BSP has a “bit of time” to wait until it starts reducing its policy rate, the peso at the moment is considered one of the most stable currency in the region for this year, said Conti.
The peso vis-à-vis the US dollar closed March 27, 2024 at P56.24. By the end of this year, S&P Global estimates the peso will be stronger at P53.85 and P52.28 by the end of 2025.
“There’s a strong US dollar and all regional currencies are depreciating except for the peso. One of the possible reason for that is that BSP is not one of the central banks that might move ahead of the Fed. Also the weak domestic demand growth environment is helping the current account deficit to normalize a little bit,” said Conti.
S&P Global rates the Philippines with a “BBB+” long-term and “A-2” short-term sovereign credit ratings with stable outlook amid the country’s sustained economic recovery and strong external position.
— Lee C. Chipongian
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Credit belongs to: www.mb.com.ph
