WEAK external demand will continue to weigh on Philippine economic growth, a Fitch Group unit said, with growth targets likely to be missed this year and the next.
“Weakness in external demand will remain a main drag, especially as the Philippines’ major trading partners are all facing domestic headwinds of their own,” BMI Country Risk & Industry Research said in a November 8 commentary.
It revised the 2024 growth forecast for the Philippines to 5.8 percent from the 6.0 percent announced in August, and also projected a 6.3-percent expansion for 2025. Both respectively fall below the government’s 6.0-7.0 percent and 6.5-7.5 percent goals for both years.
BMI, which in August trimmed the gross domestic product (GDP) growth forecast from 6.2 percent after second-quarter results fell below its expectations, cited last week’s announcement of a third-quarter slowdown as prompting the latest revision.
GDP growth decelerated to 5.2 percent in July-September, substantially slowing from 6.4 percent three months earlier, in part due to a contraction in government spending.
“The economy must expand by 6.3 percent in the final quarter just to hit our original forecast,” BMI said. “But we think that it is a tad too optimistic.”
Despite the year-on-year slowdown, however, BMI said that its overall impression is that the economy is not as weak as the numbers suggest.
Quarter on quarter, growth remained positive at 1.7 percent and was the strongest so far this year, it said.
“To be clear, we maintain that the Q3 YOY (year on year) performance will likely be the weakest in the sequence, and an acceleration is on the cards,” BMI said.
The external sector remains the “largest pain-point” for the economy, the Fitch Group unit said, noting that exports, which contracted by 1.0 percent in July-September, had trimmed 0.6 percentage points from GDP growth.
Little relief can be expected in the coming quarters, it continued, with major markets such as the United States and China facing headwinds of their own.
A pickup in domestic activity, however, will “more than make up” for weakness in external demand, BMI claimed, with policy rate cuts seen buoying investment activity and the government unlikely to rein in spending.
With an expansionary budget having been proposed for next year that will raise the deficit to 5.9 percent of GDP, it said that “the bigger story here is that coordinated fiscal loosening and easing will edge growth up to 6.3 percent in 2025.”
Risks to the outlook, BMI said, primarily stem from policies to be implemented by US President-elect Donald Trump.
With Trump having promised to impose tariffs of up to 20 percent on all imports and the US one of its largest markets, the Philippines “will not be able to shy away from the impact of these protectionist policies,” BMI said.
“Higher tariffs will make Philippine goods more expensive and less competitive in the US market, reducing demand for these exports,” it added.
Trump’s policies could also lead to higher inflation in the US, which could prompt the Federal Reserve to slow its policy easing. The Bangko Sentral ng Pilipinas, BMI said, “might have to follow suit in response.”
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