Manila, Philippines — BDO Unibank through its newest edition of Philippine Perspectives presents the macroeconomic trends of the country as of May 2024. This article will present the key takeaways from the market research done by the banking company.
The Philippine economy showing an uneven recovery
1Q24 GDP grew by 5.7%, in line with our full-year 2024 forecast but below the low end of the government’s 6-7% target range. The growth headwinds already evident last year – high interest rates that discouraged private investments and fiscal consolidation that constrained government spending – continued this year. Furthermore, 1Q24 household consumption decelerated as less affluent consumers contend with inflation and “revenge” spending continues to normalize. Nonetheless, a rebound in goods exports has partly mitigated weak domestic demand. Goods exports grew 5.8% in 1Q24 due mainly to a recovery in semiconductor exports as global economic activity remains resilient. Furthermore, 1Q24 services exports (made up of Tourism + BPO revenues) grew at a healthy 8.9% rate.
Snapshot from Philippine Perspectives: BDO Corporate Planning Research
Inflation is in line with expectations, however
Inflation has slowed from a high of 8.7% in January 2023 to an average of just 3.4% for the first four months of this year. Furthermore, the core inflation rate has decelerated for 13 consecutive months, suggesting inflationary pressures are not broadening despite volatility in food and energy commodity prices. Going forward, BSP Deputy Governor Dakila noted: “Inflation may temporarily breach 4% from May to July 2024 driven by base effects before reverting to the [2-4%] target band, in the absence of supply shocks.” For the full year, the BSP has lowered 2024 base case inflation forecasts from 3.8% previously to 3.5% (compared to BDO’s 3.6% forecast) especially with oil and rice prices trending within parameters.
Snapshot from Philippine Perspectives: BDO Corporate Planning Research
BSP may cut policy rates before the US Fed
The BSP also appears to be more concerned about a further slowdown in growth compared to a reacceleration in inflation. Last 17 May, BSP Governor Remolona mentioned: “We’re beginning to see a negative output gap. That means we may be beginning to be tighter than necessary for taming inflation.” Remolona adds: “We are [actually] somewhat less hawkish than before, which means we could ease, cut rates by Q3 or Q4 this year.” The BSP Governor’s relatively dovish comments contrast with the recent hawkish turn in market sentiment towards US policy rates due to slowing progress towards the Fed’s 2% inflation target. The latest (as of 24 May) market-implied policy rates suggest just a single 25 bps rate cut from the Fed implemented by September of this year.
Snapshot from Philippine Perspectives: BDO Corporate Planning Research
Philippine Perspectives is an extensive macroeconomic resource crafted by BDO Corporate Planning Research. This publication utilizes tailored databases, proprietary forecasting models, and fundamental analysis to deliver thorough insights into macroeconomic trends. Our goal is to equip BDO corporate clients with the knowledge necessary to make well-informed business and investment decisions.
It starts with an Executive Summary containing updated forecasts, followed by Global and Philippine Sections with “Snapshot” (where are we now) and “What’s Next?” (what to look out for) slides, and three Appendices that contain information (eg. Global macro and market trends, commodity and FX forecasts, etc) corporate clients frequently ask for.
Read the entire Market Research here: Philippine Perspectives BDO Corporate Planning Research