ANZ: Growth to slow amid fiscal tightening

MANILA, Philippines —  Philippine economic growth is projected to slow to 5.4 percent this year from 5.7 percent in 2024, and further to 5.percent in 2026, as tighter fiscal conditions and fading export momentum weigh on activity, ANZ Research said.

In a report, ANZ economist Arindam Chakraborty said the Philippines remains one of the region’s consumption bright spots, but private spending is increasingly driven by credit card use and salary-backed loans rather than sustained income gains.

“Growth has shifted to a lower gear,” Chakraborty said, noting that Philippine gross domestic product (GDP) expansion moderated to just 5.4 percent in the first half, well below the pre-pandemic average of 6.6 percent in 2016 to 2019.

While front-loaded demand from the United States could help cushion the overall slowdown this year, ANZ expects global demand to soften further, dragging growth to 5.2 percent in 2026.

Chakraborty also said that inflation eased this year on the back of lower rice and oil prices, but the relief has yet to lift household spending. He cited weak wage growth and pandemic-era savings depletion as key drags on consumption.

Central bank data showed a sharp rise in credit card debt since 2023, with over half of borrowings used for basic goods, pointing to financial strain and a likely focus on rebuilding savings over discretionary purchases.

“Furthermore, low productivity growth has dampened the incentive for private investment, contributing to the continued underperformance of gross fixed capital formation,” Chakraborty said.

Monetary policy easing by the Bangko Sentral ng Pilipinas (BSP) is also nearing its end, with only one more 25-basis-point rate cut expected before the key rate would hold steady at 4.75 percent through 2026.

ANZ said that during the BSP’s hiking cycle, policy rate increases were not fully passed through to lending rates. Therefore, banks may be reluctant to adjust lending rates downward in line with policy rate cuts, which could limit the effectiveness of monetary easing in stimulating credit and investment.

Inflation is projected to stay below the midpoint of the BSP’s two to four percent target range, averaging 1.8 percent this year before rising to around three percent in 2026.

Fiscal policy is also tightening as the government works to meet its 2025 budget deficit target, limiting room for stimulus. The deficit is targeted to decline to 4.3 percent of GDP by 2028.

“Malaysia and the Philippines will need to contend with tighter fiscal policies if the 2025 budget deficit targets are to be met,” the bank said.

Across Asia, ANZ expects regional GDP growth to grow by 4.9 percent in 2025 before slowing to 4.7 percent in 2026 as the boost from front loaded exports fades and US tariffs bite.

Export-driven economies such as China, Taiwan and South Korea are bracing for weaker demand once US tech spending cools, while India faces a harsh 50 percent tariff on key goods.

Despite softer growth, Asian currencies are poised to benefit from a weaker dollar and the Federal Reserve’s rate cuts. But the peso may not be able to strengthen significantly in the coming quarters due to the country’s large balance of payments deficit.

The peso is expected to end the year at 57 against the dollar before appreciating gradually to 55.5 per dollar by end-2026, supported by strong external positions and regional currency gains led by the Chinese yuan.