‘More deficits, growth and inflation’

LATEST growth and inflation data have prompted the investment arm of Bank of America (BoFA) to raise its economic forecasts for the Philippines.

BoFA Securities (BoFAS), in a report released on Thursday, revised its 2024 and 2025 growth outlooks to 5.9 percent from 5.4 percent and 5.5 percent, respectively,

“We raise our 2024/2025 GDP (gross domestic product) growth estimate with slightly improved forecasts for consumption, investments and government spending growth,” it said.

The revisions, however, still fall below the 6.0- to 7.0-percent and 6.5- to 7.5-percent targets for 2024 and 2025.

BoFAS also raised its deficit to GDP forecasts to 5.0 percent and 4.5 percent for this year and the next, respectively, from 4.7 percent and 4.5 percent.

The average inflation projections for 2024 and 2025 were adjusted to 3.5 percent and 3.0 percent, from 3.3 percent and 2.9 percent, “factoring-in the more recent inflation print while still anticipating weaker inflation later in 2024.”

GDP growth accelerated to 6.3 percent in the second quarter, up from 5.3 percent in the first three months of 2024 and raising the year-to-date average to 6.0 percent, at the bottom end of the government’s target.

“The key difference is that government and investment spending visibly increased in 2Q24 and eclipsed the relatively subdued growth of private consumption,” BoFAS noted.

State spending, however, is unlikely to be sustained but consumption growth — which was unchanged at 4.6 percent from the first quarter — “should start to improve.”

Government spending, in nominal terms, grew by 18 percent from 11 percent three months earlier, BoFAS said.

But with this year’s P5.76-trillion budget just 8.0 percent higher than last year’s spending of P5.33 billion, keeping expenses within means “implies only 3.0 percent growth” in the second half.

As for consumption, BoFAS expects this to be boosted by lower inflation — especially since rice import tariffs have been slashed — and higher minimum wages across the country.

Inflation, which breached the 2.0- to 4.0-percent target in July at 4.3 percent, will likely drop to 3.0 percent by the end of 2024.

“With this inflation expectation, we now expect the BSP (Bangko Sentral ng Pilipinas) to first cut its policy rate [by] 25 bps (basis points) in October and again in December,” BoFAS said.

This would bring the BSP’s policy rate, currently at a 17-year high of 6.5 percent, to 6.0 percent by year-end.

BoFAS expects monetary authorities to cut by a further 100 bps next year, bringing the benchmark rate to 5.0 percent.