Bank economists bullish on growth

MANILA, Philippines — The Philippines is on track for higher economic growth this year compared to 2024, mainly driven by higher domestic demand, easing inflation and election-related government spending, according to bank economists.

Grace Lim, senior ASEAN and Asia economist at UBS Investment Bank Global Research, said that she expects the country to grow to 5.9 percent in 2025 from 5.6 percent last year.

“The underlying positive growth delta is driven by domestic demand as both investment and consumption accelerate in 2025,” she said.

Lim said that private consumption should benefit from solid labor income growth and gradually easing food inflation, which started to take effect in the latter half of 2024.

Falling food prices, easing supply constraints and a resilient labor market should help consumption recover gradually from the second quarter of 2025 onwards, she said, following a period of high inflation that weighed on consumer sentiment.

“In addition, we think that government spending can provide some support to growth, particularly in the first half of 2025,” Lim said.

Private investment is also expected to recover gradually as financial conditions become less restrictive and as consumer sentiment slowly picks up.

The Philippine economy expanded by 5.2 percent year-on-year in the final quarter of 2024, falling short of expectations. It brought full-year gross domestic product (GDP) to 5.6 percent last year, below the six to 6.5 percent growth target of the government.

Angelo Taningco, chief economist of Security Bank, projects a higher GDP growth of 6.1 percent in 2025, citing the upcoming May elections as a key driver.

“Historically, for the past several elections, GDP is higher in an election year. So there is an upside this year compared to last year,” he said.

Taningco expects growth to moderate slightly to six percent in 2026.

On monetary policy, both economists expect further rate cuts from the Bangko Sentral ng Pilipinas (BSP) in 2025.

UBS predicts two rate cuts, one in April and another in September, while Security Bank anticipates a June cut, a pause in August, and another cut in October (each by 25 basis points).

“We think that BSP has room to cut again in 2025 given that inflation remains manageable and is likely to remain contained within the target range through this year and next year,” Lim said.

She also noted that the BSP is slightly ahead of other ASEAN central banks in its rate cutting cycle. The BSP also slashed banks’ reserve requirement ratios last week, which will likely be followed up again.

“That’s a positive development for banks and generally goes hand in hand with money market and financial market reforms that BSP has embarked on to improve liquidity management and improve the sophistication and depth of the financial markets,” Lim said.