September 26, 2024 | 12:00am
MANILA, Philippines — Philippine economic growth may fall below target this year and the next despite easing inflation and interest rates, according to think tank Capital Economics..
In a report, Capital Economics said the Philippines may grow by 5.1 percent this year, lower than the government’s six to seven percent goal.
In the second quarter, the economy grew by 6.3 percent, faster than the 4.3-percent expansion in the same quarter last year and the revised 5.8-percent growth in the first quarter.
This brought the average growth in the first semester to six percent, within the government’s target for the year.
For 2025, the think tank expects the gross domestic product (GDP) growth to be at 5.5 percent, also lower than the government’s growth goal of 6.5 to 7.5 percent.
It expects the economy to expand at a faster pace of 6.5 percent in 2026, the low end of the government’s 6.5 to eight percent target for that year.
The think tank said lower interest rates and the downtrend in inflation should provide support to consumption.
Last August, the Bangko Sentral ng Pilipinas started its easing cycle as it cut the target reverse repurchase rate to 6.25 percent from a 17-year high of 6.50 percent.
Overall inflation also eased to 3.3 percent in August from 4.4 percent in July, bringing the average inflation from January to August to 3.6 percent, which is within the government’s two to four percent target band.
While lower interest rates and inflation are expected to fuel growth, the think tank said, “this is likely to be offset by slower growth in remittances and weaker export demand.”
It said fiscal policy is also likely to hold back growth.
“We expect inflation to remain subdued over the coming months, helped by a combination of weak growth, beneficial base effects and government efforts to boost the supply of agricultural goods,” Capital Economics said.
The think tank expects inflation to slow to 3.3 percent this year and ease further to three percent next year from six percent in 2023.
“With growth set to struggle and inflation likely to remain low, further easing is likely over the remainder of this year and in the first half of next year,” the think tank said.
Aside from slower growth in remittances and demand for exports, it also said the worsening relationship between the Philippines and China poses a downside risk to the outlook.
“However, the fact that the Philippines is not closely integrated into China’s economy means the fallout should be limited,” it said.
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