Holiday spending tipped to boost Q4 growth
The Philippine economy is expected to end 2025 on a more optimistic note, as holiday spending and robust remittances could help offset the impact of the flood control corruption scandal, economists at the University of Asia and the Pacific said.
In their latest “The Market Call” report, UA&P said gross domestic product (GDP) likely grew by 5.3 percent in the fourth quarter, bringing the full-year growth to 5.1 percent.
“We expect Q4 GDP growth to improve as [the] national government resumes its spending and consumers use healthy remittance inflows to get into the holiday groove,” the report read.
“Besides, President Marcos has indicated potential convictions regarding the flood control scandal before Christmas, bolstering confidence thereafter.”
However, this would still miss the 5.5- to 6.5-percent target range of the Marcos administration but would match Economic Planning Secretary Arsenio Balisacan’s initial outlook that economic growth could hit at least 5 percent in the last quarter of the year.
Government infrastructure and capital outlays spending in September plummeted for the third straight month by 42.6 percent to P78.7 billion due to heightened scrutiny of public works amid the flood control corruption scandal.
The Department of Budget and Management said capital expenditures could “partly normalize” by year-end as the Department of Public Works and Highways (DPWH) continues the implementation of most of its public works.
Still, UA&P said the growth of overall capital outlays was still doubtful due to DPWH’s stricter validation rules.
“With more cautious infrastructure spending, the chances of major resumption of these outlays in Q4 remain in doubt,” the economists said.
Meanwhile, remittances, which rose by 3.7 percent to $3.12 billion in September, should “provide more pesos for consumer spending” in the holidays, the report said.
Inflation is also expected to remain steady at 1.7 percent by year-end and could only expand to 2.2 percent next year.
Peso gains still limited
Although the GDP is expected to rebound, UA&P economists said any relief in the peso-dollar exchange could still be limited.
“Although technical analysis implies a wide berth for a correction, the elephant in the room remains unaddressed. Investor uncertainty from the glaring ghost project issue may trump the traditional holiday remittance wave,” they said.
The third quarter GDP slowdown and benign inflation opened the room for further policy rate cuts by the Bangko Sentral ng Pilipinas (BSP), which UA&P said would “add substantial depreciation pressure.”
“The immediate support we see could be from BSP’s intervention in the spot market, though this is more for smoothing out volatility, and not defending a specific level of the USD-PHP,” they added.
The local bond market, UA&P said, has stayed resilient and could receive a further boost from the US Federal Reserve, which is expected to cut its policy rate by 25 basis points in December amid a weakening US economy and limited inflation impact from Trump’s tariffs.
Against this backdrop, UA&P is optimistic that the Philippine Stock Exchange index could ‘see some upside heading into the holiday season’ after hitting a five-year low last week, as hopes grow that the central bank’s rate cuts could provide additional support.
“An off-cycle or larger-than-expected BSP rate cut could boost investor appetite, but satisfactory judicial action on the flood control issue needs to occur to clear the air and allow the usual year-end boost to lift market sentiment,” UA&P said.
