BSP sees GDP growth hitting the lower end of 6-8% target

By Luisa Maria Jacinta C. Jocson, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) expects economic output to hit the lower end of the government’s target this year and 2026 as elevated global commodity prices and trade uncertainties could weigh on growth.

“The outlook for domestic economic activity remains firm, though growth is anticipated to moderate compared with previous assessments,” the BSP said in its latest Monetary Policy report.

The central bank said real gross domestic product (GDP) growth is projected to “settle near the lower bound” of the 6-8% target range for 2025 and 2026 set by the Development Budget Coordination Committee (DBCC).

The Philippine economy expanded by 5.6% in 2024, falling short of the DBCC’s revised 6-6.5% full-year target.

First-quarter GDP data will be released by the Philippine Statistics Authority (PSA) on May 8.

The BSP said the moderate outlook for growth this year comes after the lower-than-expected fourth-quarter GDP due to the “slowdown in services and contraction in agriculture.”

The economy grew by just 5.2% in the fourth quarter of 2024, slower than the 5.5% print in the same period in 2023.

The BSP also said higher global commodity prices are expected to “dampen economic activity.”

“These headwinds are partially offset by the BSP’s monetary policy easing. Nonetheless, uncertainty surrounding global economic policies, particularly the potential impact from proposed US tariffs, pose additional risks to domestic growth,” it added.

US President Donald J. Trump has made a series of tariff threats, ranging from a flat 25% tariff on steel and aluminum, which came into effect in February to reciprocal and sectoral tariffs that will be implemented on April 2.

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

The neutral output gap is driven by slower consumption growth, as the holiday-driven demand was hampered by several storms that hit the country late last year.

Household spending, which accounts for over 70% of the economy, grew by 4.7% in the fourth quarter, slowing from 5.2% in the third quarter and 5.3% in the same quarter in 2023.

For the full year, private consumption slowed to 4.8% from 5.6% in 2023.

The central bank also cited “weaker investment demand amid subdued global economic activity and geopolitical tensions.”

‘MODEST BUT STABLE’
Meanwhile, the global economy will likewise experience “modest but stable growth,” the BSP said, citing the International Monetary Fund’s projections that the world’s GDP could expand by 2.9% this year and 2.7% in 2026.

“In the United States, emerging policies such as higher tariffs, lower domestic taxes, and expansionary fiscal measures could have far-reaching effects on both the US and major economies in 2025 and beyond.”

“The US economy faces upside risks, while other economies confront downside risks amidst elevated policy uncertainty and various challenges,” it added.

Markets are bracing for a possible economic slowdown that could follow as Mr. Trump implements his restrictive tariff policies.

Meanwhile, the BSP said the European region could “see gradual improvement in growth, though progress remains constrained by low consumer sentiment and ongoing geopolitical tensions.”

“Other advanced economies may benefit from recovering real incomes bolstering consumption, but trade restrictions could keep investment subdued.”

“Growth prospects in the Middle East and Central Asia may fall short of expectations, primarily due to the extension of OPEC+ (Organization of the Petroleum Exporting Countries and allies) production cuts,” it added.

POLICY IMPACT
Meanwhile, an analyst said holding policy rates steady for too long could have consequences on the economy amid weak private consumption.

“Keeping rates on hold has a cost. And the cost may be aggravated by the fact if other ASEAN (Association of Southeast Asian Nations) central banks are actually cutting interest rates,” HSBC economist for ASEAN Aris D. Dacanay said on Money Talks with Cathy Yang on One News.

The BSP unexpectedly delivered a pause at its policy meeting last month, opting to keep the key rate at 5.75%.

This after it delivered three straight 25-basis-point (bp) cuts at its last three meetings of the year in 2024.

“Private consumption, the bulwark of the Philippine economy, is down,” Mr. Dacanay said.

“If you look at Philippine history, it is the slowest pace of household consumption growth ever since the global financial crisis. That doesn’t really fare well and the reason being is high interest rates.”

Mr. Dacanay said Filipino consumers are holding back spending on big-ticket purchases because of elevated borrowing costs.

“Anything that involves taking out credit, such as buying a gadget, buying your next home, buying your next automobiles, all of these are down. With high interest rates, you could really see it feeding through these slow numbers.”

Despite starting its easing cycle, BSP Governor Eli M. Remolona, Jr. has said the current policy rate is still in a “restrictive territory.”

Mr. Dacanay also flagged the implications of prolonged easing on the currency.

“If the BSP decides to hold interest rates while others in ASEAN decide to cut, the peso will strengthen.”

“But if other currencies actually depreciate against the US dollar, what will happen is that foreigners will look at the Philippine peso as expensive compared with others that are cheap.”

For his part, Mr. Dacanay said they project the BSP to deliver a 25-bp cut at its meeting on April 10.

Trading Edge Co-Founder and Chief Investment Strategist Ron Acoba likewise said the central bank is expected to cut by 25 bps next month.

“At least locally, it is expected, or there’s a better than 50-50 chance that the BSP would cut again by at least 25 bps in its monetary policy meeting next month,” Mr. Acoba said on the same program.

For the rest of 2025, Mr. Dacanay expects the Monetary Board to slash rates by a total of 75 bps.

Mr. Remolona has signaled further easing this year. He said a rate cut is still “on the table” for April and noted there is still room for “a few more” rate cuts for the rest of the year.