Steady GDP growth seen despite moderation in H2

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) expects the Philippine economy to remain on a firm footing this year despite potential moderation in the second half, with inflation projected to stay below target and monetary policy remaining supportive of growth.

BSP Deputy Governor Zeno Abenoja said the country’s gross domestic product (GDP) expanded by 5.5 percent in the first half of 2025 and may continue to grow at a similar pace in the coming quarters despite some headwinds.

“I think given the weather disturbance and the disruptions in the quarter, there could be some moderation in the near term, but it will still be a good number,” Abenoja told reporters in a chance interview.

The economy grew by 5.4 percent in the second quarter, bringing first-half growth to 5.5 percent. Abenoja said it remains uncertain whether the third-quarter expansion would slow from the previous quarter, but “it’s possible.”

He noted that the BSP still expects GDP growth to reach at least 5.5 percent this year and six percent in 2026, supported by resilient domestic demand, steady labor market conditions and improving private investment activity.

Abenoja said recent indicators suggest some cooling in manufacturing and services, citing a slowdown in the purchasing managers index (PMI) and fewer companies planning to expand operations.

Still, consumer sentiment remains upbeat. “We don’t see a marked decline in consumer sentiment,” Abenoja said, noting continued improvement in labor market conditions, with unemployment hovering around four percent or lower, better than pre-pandemic levels.

The Philippines also remains among Asia’s fastest-growing economies.

“There are only three economies in this region that will be growing at least five percent consistently for the next three years – India, Vietnam and the Philippines,” he said, citing International Monetary Fund forecasts.

He added that the country’s current account deficit remains manageable as it reflects higher investments rather than consumption.

The BSP official also said inflation is expected to stay benign for the rest of the year, averaging below two percent, before returning to around the three percent midpoint of the BSP’s target in 2026 and 2027.

“For this year, we think that it will continue to be benign. Mostly, it will be below two percent,” he said, adding that “there could be some volatility, but overall, we see inflation to be not a big problem right now.”

Headline inflation eased to 1.7 percent in September, below the BSP’s two to four percent target range, driven largely by falling rice prices and lower energy costs. Core inflation, which strips out volatile items, also remained stable at below two percent.

However, Abenoja acknowledged that temporary price pressures could emerge toward year-end due to weather disturbances. “It’s possible, but we think it’s below (target). We don’t discount moving closer to two percent in the near term since there may be disruptions because of the weather,” he said.

Since August 2024, the BSP has cut policy rates by a cumulative 175 basis points, alongside a reduction in banks’ reserve requirements that infused an estimated P650 billion into the system.

“These measures reduce intermediation costs and allow banks to expand their operations more efficiently,” Abenoja said. “Hopefully, it will also translate to better transmission of monetary policy moving forward.”

SM Investments Corp. chief economist Dan Roces shared a similar view, saying that while global headwinds could temper growth in the near term, domestic fundamentals remain sound.

“If we are to be conservative about it, we think growth next year is expected to stay steady. That’s being conservative. Not a surge, but a sustained climb supported by resilient consumers and hopefully the return of private investment,” he said.

Roces noted that inflation “is now low enough to permit easing by the BSP,” giving policymakers more room to support recovery. “Credit conditions are improving and households get a bit more breathing space for discretionary spending,” he said.