The Philippine economy is on track to grow close to its full potential, according to the Bangko Sentral ng Pilipinas (BSP). The central bank now projects growth to hit its 6.0-7.0% target for 2024.
“The outlook for domestic economic activity remains firm,” the BSP stated in its latest Monetary Policy Report. While growth targets for 2024 seem within reach, the bank has adjusted its forecasts for 2025 and 2026, expecting slightly slower growth during those years. The target for 2025 is set at 6.5-7.5%, while for 2026, it’s a broader 6.5-8.0%.
The Philippine economy expanded by 6.3% in the second quarter, bringing first-half growth to 6.0%, meeting the lower end of the 2024 target.
Looking ahead, the BSP noted that “growth prospects are relatively stable for the rest of the year,” buoyed by increased construction spending and the government’s timely implementation of various programs.
Earlier this year, the central bank expressed concerns that the economy might operate “slightly below potential” in 2024 and 2025, but in its most recent report, the BSP expects the output gap – the difference between actual and potential economic performance – to close by 2026.
Key drivers of this growth include higher household consumption, supported by rising real wages and steady remittances from overseas Filipinos. These factors are expected to counteract the dampening effects of previous interest rate hikes. “This will bring domestic output closer to its potential over the policy horizon,” the report added.
The BSP also highlighted improvements in the labor market and sustained investment growth as crucial elements for reaching the economy’s full potential. These trends are further bolstered by ongoing reforms aimed at promoting business activity and attracting investments.
The BSP began easing its policy stance in August by cutting the policy rate by 25 basis points, bringing it down to 6.25%. More rate cuts are anticipated over the coming years, with the possibility of returning to pre-tightening levels of around 2.0% by 2026. The tightening cycle initially began in May 2022 in response to surging inflation.
Inflation is expected to remain within the central bank’s 2.0-4.0% target range for 2024, with baseline and risk-adjusted forecasts trimmed to 3.4% and 3.3%, respectively. In May, those forecasts were higher, at 3.5% and 3.8%.
The BSP stated that risks to the inflation outlook for 2024 and 2025 are now tilted toward the downside, while for 2026, there’s a slight lean toward the upside. Key risks include rising fares and electricity rates, both of which were assigned medium and high probabilities, respectively. Meanwhile, falling rice prices due to lower import duties are seen as the primary downside risk to inflation.
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