A more manageable inflation of 2.8 percent in 2025 will boost consumer spending, according to Emilio Neri Jr., a senior economist at Bank of the Philippine Islands (BPI).
Neri said the improved inflation outlook could be attributed to enhanced food supply prospects, particularly for rice, following the conclusion of El Niño and potential tariff reductions. However, risks remain, including the threats posed by La Niña and African Swine Fever.
The lower inflation could boost household discretionary spending, further stimulated by election-related expenditures. An anticipated recovery in consumption, however, may not be enough to boost economic growth to the government’s growth target of 6.5 to 7.5 percent next year. Neri said growth drivers should also come from other structural drivers and sectors.
The Philippine economy demonstrated robust growth of 6 percent in the first half of 2024, positioning it as the second-fastest growing economy in Southeast Asia. Key growth drivers included strong consumer spending and government infrastructure projects, supported by steady remittance inflows and declining unemployment rates.
Meanwhile, the private construction sector remained a concern, as spending has yet to return to pre-pandemic levels amid high vacancy rates and subdued demand for residential projects.
Neri said the Bangko Sentral ng Pilipinas (BSP) would likely continue its monetary easing, with expectations of reducing the policy rate to 5.75 percent by December 2024. He said the interest reduction could provide a lift to private sector construction and other sectors of the economy including tourism, cold storage, logistics, data centers, and development of more industrial estates.
Global uncertainties, including rising protectionism and geopolitical tensions, may complicate the BSP’s approach. He said a cautious strategy on rate cuts is essential to ensure market stability, while working toward the long-term goal of reducing the reserve requirement ratio to zero.
The Philippine peso is also expected to strengthen in the coming year, as the country’s current account deficit is expected to remain manageable, but sensitive to the actions by the US Federal Reserve next year.
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