SINGAPORE, December 2, 2024 – The Philippine economy is expected to strengthen further with easing inflation and a less restrictive monetary policy. GDP growth is expected to reach 5.8 percent in 2024 and accelerate to 6.3 percent in 2025, supported by strong domestic demand and a pickup in external demand. Headline CPI inflation is projected to fall to 3.2 percent in 2024 from 6.0 percent in 2023, and maintain at 3.2 percent in 2025.

AMRO’s assessments are highlighted in the 2024 Annual Consultation Report on the Philippines published today by the ASEAN+3 Macroeconomic Research Office (AMRO). The report is based on AMRO’s Annual Consultation Visit to the Philippines from August 27–September 6, 2024, and data and information available up to November 7, 2024.

Economic developments and outlook

In the first three quarters of 2024, the Philippine economy grew steadily at 5.8 percent, bolstered by a recovery in public consumption and construction investment, as well as export recovery. The strong labor market helped boost domestic consumption, despite the elevated underemployment rate. Inflation continued its declining trend from 2023, mainly driven by lower global commodity prices, the government’s inflation-containing measures, and tight monetary policy.

On the external front, the current account improved with a narrowing merchandise trade deficit. The net financial account inflows increased, and international reserve remained sufficient. As inflationary pressure eased, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) delivered the first rate cut on August 15, signalling a calibrated shift to a less restrictive monetary policy stance. This was followed by another 25-basis-point rate reduction on October 16. The BSP also announced further reductions in the reserve requirement ratio in late October as part of its efforts to reduce distortions in the financial system. The banking system has been resilient with ample liquidity, robust profitability, and high capital buffers. The fiscal position has continued to improve in 2024, supported by a significant increase in revenue despite higher fiscal expenditure.

Risks and vulnerabilities

The growth prospects of the Philippines could be subject to a few risk factors. Higher inflation could dampen consumption, while a potential sharp slowdown in major trading partners could pose risks to growth. Heightened geopolitical risks could increase the likelihood of global supply disruptions and lead to a resurgence of inflationary pressure. The country’s long-term potential growth could be challenged by insufficient infrastructure investment, vulnerabilities to climate change, and the prolonged scarring effects from the COVID-19 pandemic.

Policy recommendations

The current fiscal-monetary policy mix is appropriate and can be adjusted further to support economic growth while rebuilding policy buffers. If inflation continues to ease within the BSP target band, there is room to adopt a less restrictive monetary policy stance. A whole-of-government approach should be taken to address inflationary pressures if supply-side risks emerge.

While the need for strategic adjustments in the medium-term fiscal policy to support the economy is justifiable, the pace of fiscal consolidation should be accelerated when conditions allow. Further revenue mobilization, efficiency improvement in expenditure, and long-term fiscal reforms should continue to be carried out.

The country’s overall financial stability remains sound. Should financial stability risks arise, a more active use of macroprudential toolkits could be considered. There are signs of vulnerabilities in certain areas, such as household and property sectors, which warrant close monitoring. The authorities should also continue to strengthen the institutional framework to safeguard financial stability and deepen the bond and repo markets.

A holistic strategy would be required to bolster the Philippines’ potential growth. The government should implement timely measures to upskill and reskill labor and attract foreign direct investments while encouraging technology transfer and upgrading. To lift growth potential, it is important to develop a comprehensive strategy to enhance productivity and competitiveness. This includes further infrastructure investment and continued development in digitalization as well as promoting a sustainable economy.

About AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute toward securing macroeconomic and financial resilience and stability of the ASEAN+3 region, comprising 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support regional financial arrangements, and provide technical assistance to the members. In addition, AMRO also serves as a regional knowledge hub and provides support to ASEAN+3 financial cooperation.

About AMRO’s Annual Consultation Report

The Annual Consultation Report was prepared in fulfillment of AMRO’s mandate. AMRO is committed to monitoring, analyzing, and reporting to its members on their macroeconomic status and financial soundness. AMRO also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.