MANILA, Philippines — The Philippine economy is expected to grow by six percent this year, up from the 5.6 percent expansion in 2024, as public investment spending will continue to drive economic activity, according to Nomura Global Markets Research.
In a report, Nomura analysts Euben Paracuelles and Nabila Amani said the Philippines’ aggressive infrastructure push and the midterm elections in May 2025 would be key factors bolstering gross domestic product (GDP) growth.
“Sustained infrastructure implementation should crowd in private investment when borrowing costs are declining and the Bangko Sentral ng Pilipinas (BSP) is easing monetary policy,” they said.
Inflation is also stabilizing at low levels. Paracuelles and Amani said that low inflation and some improvements in the labor market would support household spending.
Nomura forecasts inflation to moderate to 2.7 percent in 2025 from 3.2 percent in 2024, staying well within the BSP’s two to four percent target range.
Headline inflation stood at 2.9 percent year-on-year in January, while core inflation eased to 2.6 percent from 2.8 percent. Lower rice import tariffs and other government supply-side measures are expected to continue keeping inflation in check.
With inflation stabilizing, the BSP is likely to cut interest rates by 75 basis points, bringing the policy rate down to five percent from the current 5.75 percent.
These reductions are expected to be implemented in the first three policy meetings of the year, starting on Feb. 13.
Additionally, Nomura projects a 200-basis-point reduction in banks’ reserve requirement ratio by mid-2025, aligning with the BSP’s goal of improving monetary policy transmission by lowering reserve levels.
“However, strong external headwinds will likely provide some offset due to US President Donald Trump’s policies, so our GDP growth forecast remains at the low end of the government’s forecast range of six to eight percent,” Paracuelles and Amani said.
Moreover, the Philippines’ current account deficit is expected to widen to 3.1 percent of GDP in 2025 from 2.9 percent in 2024, reflecting improving domestic demand and stronger external headwinds.
On the fiscal front, Nomura anticipates a modest narrowing of the fiscal deficit to 5.5 percent of GDP in 2025 from 5.9 percent in 2024. However, this remains above the government’s medium-term fiscal framework target of 5.3 percent.
“We think MTFF targets are challenging to meet due to spending priorities, such as flagship infrastructure projects,” Paracuelles and Amani said.
From January to November 2024, the country’s budget deficit went up by 5.9 percent to P1.18 trillion from P1.11 trillion as revenues picked up faster than state spending.