ECONOMIC GROWTH may continue to stabilize under the Philippine government’s targets for 2024 and 2025, Deutsche Bank Research said.
“Over the past three months, Asian economies have shown mixed growth. “Malaysia, Thailand, and Singapore have experienced major economic growth, while Indonesia and the Philippines have experienced economic decline,” the report said.
It cited its own Asia Macro heat map, which seeks to “measure the health of various Asian economies using the most common economic indicators.”
“Out of the rest of the region, only China and the Philippines’ growth momentum remains below the average levels of the last decade,” he said.
Deutsche Bank expects Philippine gross domestic product (GDP) to average 5.8% this year and slow to 5.6% next year.
Both of these are below the government’s targets of 6-7% and 6.5-7.5% for 2024 and 2025, respectively.
Philippine GDP reached 6% in the first quarter. To meet the lower end of the government’s target, the economy will also need to grow by 6% for the rest of the year.
In terms of policy, Deutsche Bank expects the Bangko Sentral ng Pilipinas (BSP) to end with the rate standing at 5.75% this year and 5% next year.
The Monetary Board began its easing cycle with a 25 basis point (bp) cut in August, the first drop in borrowing costs in nearly four years.
A BusinessWorld a survey conducted last week showed that 16 out of 19 analysts expected the Monetary Board to cut rates by 25 bps on Wednesday, which would bring the target repurchase rate to 6% from the current 6.25%.
“Currently, the BSP remains tense, in our reading. Although local investors are expecting another 125-175 points of reduction in this cycle, we believe that more can be priced in if historical real rate levels are revised,” he said.
“Indeed, bank loans have been growing rapidly even before the recent rate cuts. We are concerned that the savings-investment balance will deteriorate significantly down the road,” he added.
Meanwhile, Deutsche Bank also predicts that the peso will “find close support, however, from strong remittances from time to time.”
“The peso has room to outperform, but only in the strong seasonality of the fourth quarter. The renewed weakness of the effective exchange rate in recent weeks has created room for USD/PHP to decline in the event of USD weakness,” it said.
“However, the risks are also proportional to the upside if the USD were to strengthen, especially if this happens due to the high tax risks that are imposed on the rates,” he added.
The peso closed at P57.865 to the dollar on Tuesday, weakening from its close of P57.47 on Monday.
This was the peso’s worst close since it ended at P57.9 in Aug. 5.
“Any downward movement in USD/PHP, if it occurs, is likely to be limited. In our framework to look at the basic balance of payments (BoP) cushion, the Philippines currently shows that it does not have it,” he said.
The latest projections of the BSP show that the BoP will register more than 2.3 billion dollars this year, which is equivalent to 0.5% of GDP.
“The trade deficit is too large and prevents a sustainable BoP surplus in the medium term, and especially in the first half of 2025. In addition, imports of major goods are starting to pick up as long-delayed infrastructure projects finally get underway. their construction stages (from the methods of finding the right ones). – Luisa Maria Jacinta C. Jocson
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