Steady yet modest growth seen for Philippines

Amid global headwinds

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects economic growth to moderate in 2025 and 2026, but still within the government’s target range of six to eight percent.

Based on its February monetary policy report, the central bank projects the country’s gross domestic product (GDP) to settle near the lower end of the government’s six to eight percent target for 2025 and 2026.

“The outlook for domestic economic activity remains firm, though growth is anticipated to moderate compared to previous assessments,” the BSP said.

The slowdown in economic growth stems from the weaker-than-expected fourth-quarter growth in 2024, which was largely driven by a deceleration in the services sector and a contraction in agriculture.

Additionally, higher global commodity prices are anticipated to weigh on economic activity, posing further challenges to growth prospects.

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 GDP to 5.6 percent last year, below the six to 6.5 percent growth target of the government.

Despite these challenges, the BSP noted that its ongoing monetary policy easing would help cushion the impact of headwinds.

However, uncertainty in global economic policies, including the potential effects of proposed US tariffs, presents additional risks to the domestic economy.

The Monetary Board opted to keep borrowing costs unchanged last month, keeping its key interest rate at 5.75 percent. This was after it slashed policy rates by a total of 75 basis points in 2024.

BSP Governor Eli Remolona Jr. earlier said that the central bank remains on an easing cycle. However, it is maintaining a cautious approach to monetary easing as any interest rate cuts this year will likely be done in “baby steps.”

“The overall balance of demand and supply conditions translates to a neutral output gap, suggesting limited demand-driven inflationary pressures,” the BSP said.

Key factors include softer consumption growth, weaker investment demand amid subdued global economic activity and geopolitical tensions as well as continued improvements in the country’s labor market.

Meanwhile, the peso is projected to trade above the government’s exchange rate assumptions for 2025 and 2026.

This is influenced by a slower-than-expected pace of monetary policy easing by the US Federal Reserve, which is expected to cut interest rates by 50 basis points in 2025 and an additional 25 basis points in 2026.

The government’s exchange rate assumptions as of December 2024 are P56 to P58 per dollar for 2025 and P55 to P58 versus the greenback for 2026.