PH growth seen below 3% as weak demand, inflation weigh
Economic growth this year is likely to fall short of President Marcos’ target as weak domestic demand weighs on the economy, Bank of America said, while the central bank is expected to focus more on taming red-hot inflation than supporting growth for now.
In a note to clients, BofA forecasts that gross domestic product would expand by less than 3 percent this year.
That would put growth well below the Marcos administration’s 3.5-percent to 4.5-percent target and leave the economy operating far below its estimated 6-percent growth potential.
Growth next year could be better if the government plans to increase its spending, BofA said. But it warned that inflation pressures are on the rise again.
“From a domestic demand perspective, consumption momentum remains weak mainly due to weak first-half spending, but steady remittances growth, increased minimum wages, and some pick up in government spending, especially on education and health care, which should lead to some cyclical recovery,” the bank said.
“Resurgence in energy prices is further adding to the pressure points, but the consequence for consumption also remains negative, in our view,” it added.
The Bangko Sentral ng Pilipinas (BSP) has raised its benchmark interest rate by a quarter percentage point three times since April, bringing it to 5 percent. Gov. Eli Remolona Jr. has said the central bank is prepared to raise rates as much as necessary to bring inflation back to target and keep inflation expectations anchored.
But the central bank must also weigh the weakness of the economy, which grew just 2.6 percent in the first half as consumption slowed amid war-related pressures and government spending remained subdued following a crackdown on corruption.
BofA said it expects the BSP to raise its inflation forecasts for both 2026 and 2027, which currently stand at 6.1 percent and 5.4 percent, respectively. The combination of elevated inflation and weak growth leaves the central bank facing a difficult policy trade-off, BofA said.
“Still, given BSP’s inflation mandate and extended period of inflation remaining above its target, the probability of more rate hikes in the future has risen, in our view,” BofA said.
“In case the BSP ends up hiking aggressively, and eventually as inflation falls aggressively, the reversal of the cycle sometime in 2027 or 2028 could be equally sharp as well, but contingent on inflation coming off sharply as BSP projects,” it added.
