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PHL growth momentum seen to continue this year

A man checks out the Chinese New Year display inside a mall in Dasmariñas, Cavite, Feb. 1. — Photo by EDD GUMBAN, The Philippine Star

THE PHILIPPINE ECONOMY is seen expanding faster this year, although meeting the government’s growth target may be difficult amid tight monetary policy, analysts said.

In a note on Thursday, BMI Country Risk & Industry Research said it sees the Philippine economy continuing its strong growth momentum after gross domestic product (GDP) expanded by 5.6% in 2023.

“The latest growth figures reflect the resilience of the Philippine economy and we think that this momentum will continue going into the new year. 2024 looks set to be another strong year and we forecast real GDP growth to accelerate to 6.2%,” it said.

Data from the Philippine Statistics Authority showed that GDP growth print in 2023 was much slower than the 7.6% expansion in 2022 and was below the government’s full-year target of 6-7% last year.

According to BMI, the uptick in investment helped prop up economic expansion in the fourth quarter, even as the Bangko Sentral ng Pilipinas (BSP) maintained tight monetary policy.

Gross capital formation jumped by 11.2% in the October-December period, faster than 3.3% a year ago and a turnaround from the 1.4% decline in the third quarter. This brought the full-year expansion of gross capital formation to 5.4%.

Meanwhile, the Bank of the Philippine Islands (BPI) said the Philippine economy may grow to 6.3% this year, especially as headwinds last year are now subsiding.

“Consumer and investment spending growth may accelerate further as inflation slowly moves within the 2-4% target of the central bank,” it said.

Household final consumption jumped by 5.3% in the fourth quarter, faster than 5.1% in the previous quarter but slower than 7% a year earlier.

In 2023, household spending expanded by 5.6%, much slower than 8.3% in 2022. Private consumption accounts for about three-fourths of the economy.

BPI said that inflation is expected to slow in the next three months due to base effects, but the consumer price index (CPI) may breach the 2-4% target again in the second quarter before easing back to the target in the second half.

“Despite this, average inflation for the year is expected to settle at 3.7%. The BSP might be able to cut interest rates in the second half of 2024, which can provide relief to those who borrowed heavily before the 2022 rate hikes,” BPI said.

To tame inflation, the BSP tightened borrowing costs by a total of 450 basis points (bps) from May 2022 to October 2023, bringing the key rate to a 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. earlier ruled out a rate cut in the first half amid risks to the inflation outlook, but he said the BSP may start considering policy easing in the second semester of the year.

“The BSP may keep its rates steady in the first half of the year, taking into account a possible inflation rebound in the second quarter. Rate cuts are possible in the second half of the year once inflation is firmly within the target of the central bank,” BPI said.

But the timing and size of rate cuts would depend on future policy moves from the US Federal Reserve as well, it said.

“If local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle,” the bank added.

Meanwhile, Bank of America Global Research said the growth in investment may not be sustained in the first half of the year, as the central bank will not be cutting borrowing costs until May.

“The stronger-than-expected GDP may also mean more price pressure and hence, restrain the Bangko Sentral from cutting sooner,” it said.


Fitch Solutions’ BMI noted the Philippine economy may not be able to achieve the government’s 6.5-7.5% target despite the strong growth momentum.

“With tight monetary policy and likely fiscal pullbacks weighing on global demand, we think that the government’s official growth projections of 6.5-7.5% in 2024 might prove a tad too optimistic,” it said.

BMI also sees a slowdown in trading activity amid weak global demand. It projected global growth may slow to 2.1% in 2024 from 2.5% in 2023.

Pantheon Chief Emerging Asia Economist Miguel Chanco in a note said Philippine GDP growth may slow to 4.8% this year.

“That said, we no longer think the BSP will rush to start normalizing policy in the wake of the fourth quarter’s solid headlines; we now expect rate cuts to start in the second quarter, most likely from May,” he said.

Meanwhile, Jean de Castro, head of fixed income from Manulife Investment Management and Trust Corp. Philippines said the government will likely meet its growth target this year, but at the lower end of the 6.5-7.5% range.

“Should inflation continue to moderate, growth in household consumption might improve given the recent increase in minimum wage and decline in unemployment rate,” she said.

Ms. De Castro also expects household and government spending to be the main growth drivers this year, but elevated inflation and interest rates are still the major risks.

The BSP sees full-year inflation at 3.7% this year and 3.2% for 2025. However, should risks materialize, the risk-adjusted inflation forecasts show average CPI may hit 4.2% in 2024 and 3.4% next year.

The BSP is scheduled to have its first policy review of the year on Feb. 15. — Keisha B. Ta-asan

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