EXTERNAL and domestic risks such as a territorial row with China and the feud between President Ferdinand Marcos Jr. and Vice President Sara Duterte could limit Philippine economic growth, Nomura said, with the country seen “navigating choppier seas” in the near term.
The global financial services firm, in its Asia Macro Outlook 2025 report released on Wednesday, expects the country to grow by just 5.6 percent this year, just a notch higher than 2023’s 5.5 percent and below the recently revised 6.0- to 6.5-percent target for the year.
Gross domestic product (GDP) growth will likely improve to 6.0 percent in 2025, Nomura said, and then edge up to 6.1 percent the following year.
Both forecasts would have also fallen below the government’s previous targets of 6.5-7.5 percent and 6.5-8.0 percent, respectively, but now are at the lower end of the downwardly revised 6.0-8.0 percent adopted just this Monday.
“Sharply weaker global growth and higher global trade protectionism pose downside risks to growth,” Nomura said, adding that “escalating geopolitical tensions, particularly in the South China Sea, could also generate more growth headwinds.”
“A resurgence in oil prices and renewed supply shocks on food prices could push headline inflation higher, limiting monetary easing,” it continued.
Weak results in next year’s midterm elections, meanwhile, and a worsening of the Marcos-Duterte feud “could reignite political risks,” while a faster rollout of infrastructure projects could provide an upside.
GDP growth currently stands at a below-target 5.8 percent following a slower-than-expected 5.2 percent in the third quarter. Economic managers remain optimistic that 6.0 percent is achievable, but this will require a 6.6-percent expansion in the last three months of 2024.
Nomura said that fourth-quarter growth would likely only edge up to 5.3 percent.
As for next year’s outlook, “we think public investment spending will remain a significant growth engine, as the government pushes for more progress on infrastructure projects, which remain a top priority of the Marcos administration.”
The 2025 elections will provide an added push and infrastructure implementation “should, in our view, start to crowd in private investment spending when borrowing costs are declining and BSP (Bangko Sentral ng Pilipinas) is easing monetary policy.”
An improved inflation outlook and positive wage growth are likely to boost consumer sentiment, supporting a recovery in household spending.
“However, strong external headwinds will likely provide some offset, particularly in H2 2025,” Nomura warned.
The return of “Trump 2.0” policies, including higher tariffs on Chinese imports, could indirectly impact Philippine exports as the country is among the most vulnerable in the region to US President-elect Donald Trump’s policy plans.
“We pencil in slow growth of goods & services exports, with the tariffs likely to weigh on external demand, while worker remittances, which support domestic consumption, are likely to be negatively affected by tighter immigration policy in the US, similar to Trump’s first term,” it said.
Foreign direct investments, already more limited compared to regional peers, could be further affected by mounting tensions in the South China Sea if Trump decides to provide less regional security.
The fiscal deficit is expected to narrow to 5.5 percent of GDP in 2025, from 5.9 percent this year, but will still be over the government’s medium-term target of 5.3 percent and the pre-Covid average of 2.4 percent.
Targets under the Medium-Term Fiscal Framework, Nomura said, “will likely be challenging to meet due to the elections and spending priorities.”
The current account deficit, meanwhile, will likely rise to 2.5 percent of GDP from 2.3 percent, with growth seen being led by domestic demand.
The impact of Trump 2.0 on remittances will weigh on the shortfall, and financing this will come from “more volatile sources.”
Nomura expects the BSP to cut its policy rate by another 100 basis points (bps) — 25 bps later this month and three identical cuts during the first three meetings next year — following the two 25-bps reductions in August and September.
“As was clear in BSP’s guidance in its last two decisions, the next moves will largely be driven by the 2025 and 2026 inflation outlooks rather than data for the rest of 2024,” Nomura added.
It expects headline inflation to hit 3.1 percent this year, 2.9 percent in 2025 and 3.0 percent in 2026, within the central bank’s 2.0- to 4.0-percent target range.
A shallower easing by the US Federal Reserve is not expected to constrain the BSP, which Nomura also expects to cut bank reserve requirements by another 200 basis points to 5.0 percent by mid-2025 following a reduction in October.
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