Analysts trim GDP outlook after poor Q1

BSP rate cuts seen supporting growth

MANILA, Philippines — Analysts have trimmed their Philippine growth forecasts for the year after the economy underperformed in the first quarter, reinforcing expectations that the Bangko Sentral ng Pilipinas (BSP) may need to cut interest rates further to spur demand.

Despite stronger household spending and a pre-election boost in government expenditure, the country’s gross domestic product (GDP) grew by only 5.4 percent year-on-year in the first quarter, a tad higher than 5.3 percent in the previous quarter but below market expectations.

It was also slower than the 5.9 percent growth in the first quarter of 2024 and missed the government’s six to eight percent target for this year.

In its Asia Economic Monthly report, Nomura Global Markets Research described the first-quarter growth outcome as “disappointing” and attributed it to weak investment spending and external demand.

“A key source of the downside surprise was investment spending growth, which we believe suggests businesses have already turned cautious amid surging global trade uncertainty, even in a less open economy,” Nomura research analysts Euben Paracuelles and Nabila Amani said.

Nomura has revised its Philippine GDP growth forecast to 5.3 percent in 2025 from 5.9 percent previously. It also cut its projection for 2026 to 5.6 percent from 6.1 percent previously.

Paracuelles and Amani said escalating global trade and geopolitical tensions are the main downside risks to growth. However, upside risks include faster implementation of infrastructure projects and lower oil prices.

For its part, HSBC Global Research now sees growth at 5.6 percent for the Philippines this year, lower than its previous estimate of 5.9 percent.

“We expect growth in the Philippines to weaken further in the second half of 2025 as trade uncertainties and challenges put a drag on the global economy. Goods exports will likely slow down as tariffs cascade throughout the globe,” HSBC economist for ASEAN Aris Dacanay said.

With growth expected to hit below the government’s six to eight percent target, economists expect the BSP to continue its easing cycle. Nomura and HSBC expect policy rates to fall down to the five percent mark by yearend.

Nomura forecasts additional 75 basis points of rate cuts this year, bringing the terminal rate to 4.75 percent. HSBC sees the BSP lowering rates to five percent, regardless of whether the US Federal Reserve follows suit, amid stable inflation.

“The benign inflation outlook remains underpinned by a negative output gap, low crude oil prices and the government maintaining supply-side measures,” Paracuelles and Amani said.

Dacanay also said recent reductions in banks’ reserve requirement ratios would likely enhance monetary transmission, making upcoming rate cuts more effective in stimulating the economy.

Infrastructure spending is also expected to provide a high multiplier effect, cushioning the impact of weak exports.