Amid slow GDP uptick
MANILA, Philippines — The Philippine economy grew a tad faster than expected in the second quarter, but economists warned that the modest improvement may be hard to sustain and could require quicker monetary easing to keep the recovery on track.
In a report, Nomura economists flagged slowing investment and rising trade headwinds as reasons for the Bangko Sentral ng Pilipinas (BSP) to accelerate its policy easing, even as the economy posted a 5.5-percent gross domestic product (GDP) growth in the second quarter.
“We maintain our forecast that GDP growth will slow to 5.3 percent this year from 5.7 percent in 2024, but acknowledge rising downside risks due to the US tariffs,” Nomura’s Euben Paracuelles and Nabila Amani said.
Nomura’s 5.3-percent forecast pencils in GDP growth slowing to 5.2 percent year-on-year in the second half from 5.4 percent in the first half, even if there would be a rebound in public investment spending.
“We believe private investment spending will be more subdued, as businesses turn more cautious owing to surging global trade policy uncertainty and an increasingly challenging operating environment,” the Nomura economists said.
“Taking into account the challenging growth outlook, we continue to forecast BSP will cut its policy rate by 25 basis points at its next Monetary Board meeting on Aug. 28, followed by another 25 basis points in October.”
If realized, this would bring down the key policy rate to 4.75 percent by year-end from the current level of 5.25 percent.
We continue to believe BSP remains on a path of a steady shift to a more accommodative stance, given the benign inflation outlook,” Nomura said.
HSBC ASEAN economist Aris Dacanay also urged quicker monetary policy easing, saying the headline number belies vulnerabilities that warrant policy support.
“We think the finer details suggest that further monetary easing could be desirable to help keep the economy afloat,” he said.
Dacanay pointed to a mixed external picture. While goods exports surged by 13.6 percent year-on-year in the second quarter, services exports fell by 4.2 percent. He warned that a stronger peso versus competitors such as India weakens the Philippines’ cost competitiveness.
“Quickening and deepening the ongoing easing cycle will help support both sectors. Lower interest rates can help incentivize further investments, while it can also help improve or at least maintain the competitiveness of the services exports sector via the forex channel,” Dacanay said.
DBS Bank’s Radhika Rao echoed the view that the inflation backdrop gives the BSP room to act. “Within-target inflation provides the room to lower rates further, after the BSP unwound a third of the hikes undertaken in 2022 to 2023,” Rao said.
Oxford Economics lead economist Sunny Liu said easing inflation and steady remittances supported the pickup in household consumption, which expanded by 5.5 percent in the second quarter.
Still, she noted the loss of the election-related fiscal impulse and weakness in public construction. It is also too early to assess the full impact of the 19-percent tariff rate on Philippine exported goods to the US.
“The central bank is expected to remain accommodative, with a 25-basis-point rate cut likely at its upcoming meeting in August,” Liu added.
Analysts said the second-quarter print increases the chances the BSP will press ahead with cuts after it has already trimmed a portion of its previous tightening cycle. Nomura’s call for a 25-basis-point cut in August and another in October mirrors other market views that the central bank can afford to move given the easing inflation backdrop.
Still, agencies and multilateral institutions remain generally more cautious on full-year growth: Nomura sees 5.3 percent for 2025, HSBC expects growth to come in at 5.4 percent this year, while Oxford kept its full-year forecast at 5.5 percent.
As policymakers weigh the trade-offs between safeguarding the recovery and guarding against upside inflation surprises, analysts say the policy path will hinge on whether private investment and exports can regain steam while consumption holds firm.