Economy seen growing among the region’s fastest
We have seen household spending slow more than we expected due to the impacts of high inflation, although it trended lower in the second half of last year
Text size
Daily TribuneWe have seen household spending slow more than we expected due to the impacts of high inflation, although it trended lower in the second half of last year
The Asian Development Bank (ADB) said Wednesday that the economy could expand at the third fastest rate in Southeast Asia this year, at 6 percent, due to resilient household consumption and sustained government spending. For next year, ADB projects the local economy to expand slightly by 6.1 percent.
According to ADB’s Asian Development Outlook, released Wednesday, Vietnam is projected to grow the fastest this year at 6.6 percent, followed by Cambodia at 6.1 percent.
“The Philippines remains a bright spot in the Southeast Asian region, with robust private consumption and sustained investments, particularly on infrastructure, continuing to fuel growth,” ADB country director for the Philippines Pavit Ramachandran said in a media briefing on Wednesday in Mandaluyong City.
However, the 6 percent forecast for the Philippines this year is lower than the 6.2 percent the ADB had estimated in December last year but still higher than the 5.7 percent actual growth recorded for 2024.
ADB Philippines senior economics officer Teresa Mendoza said the downgrade reflects the delayed effects of the Bangko Sentral ng Pilipinas’ (BSP) monetary policy easing on household consumption amid elevated inflation last year.
“We have seen household spending slowed more than we expected due to impacts of high inflation, although it trended lower in the second half last year,” she said.
The Philippine Statistics Authority reported that household consumption slowed to 4.7 percent in the last quarter of 2024 from 5.2 percent in the third quarter. Inflation averaged 3.2 percent last year, settling around the BSP’s mid-target. To drive economic growth, the BSP slashed its policy rate for lenders by 75 basis points from 6.5 to 5.75 percent.
Mendoza added that there are looming inflationary risks due to US President Donald Trump’s high tariff policies.
“There could be spillover effects across various channels. It could be financial channels, foreign direct investments, and global monetary and fiscal policies,” she said.
Trump ordered a 17 percent tariff on Philippine exports to the US, much lower than other Southeast Asian countries like Cambodia with 49 percent, Vietnam with 46 percent, and Thailand with 36 percent.
ADB director of Macroeconomics Research Abdul Abiad expects the Philippines and its neighbors to boost intra-regional trade to sustain economic growth.
“There is no getting around the US, the largest economy in the world. But 97 percent of the Asian regional gross domestic product is not dependent on US demand,” he said.
Mendoza said the faster economic growth next year will be driven by higher corporate investments, a robust services sector, and continuous inflows of overseas Filipinos’ remittances for consumption of goods and services back home.
“Private consumption will drive retail trade and higher international tourist arrivals will benefit services, most notably in hotels and restaurants, transport, and communications,” the ADB Outlook report said.
“Minimum wage hikes in several regions in 2024 and early 2025 will boost spending,” the report added.
ADB expects average inflation at 3 percent this year and in 2026, lower than its 3.2 percent estimate in December and within the Central Bank’s target range of 2 to 4 percent
“Lower global commodity prices, particularly oil, and the slowdown in price inflation will help keep prices contained,” Mendoza said.
“Although there are upside risks to inflation, including potential increases in electricity rates and transport fares,” she added.
Mendoza said the Central Bank might gradually ease its policy rate this year to prevent rising inflation rates, especially since Trump tariffs are expected to persist.
“There are still a lot of moving parts,” she said.
Abiad said the government must actively participate in regional trade outside the US as it studies steps to negotiate better US tariffs.
“I think you should pursue that. I think the Trump tariffs will likely persist and you need to prepare for that world,” he said.
Pavit said the government and businesses must accelerate collaborations to upskill labor as countries diversify their export markets and suppliers.
“There is a chance to go up the services value chain, like moving up in the financial services, information technology and the health sector,” he said.
After a five-year pause, Trump tariffs must also encourage the government to pursue talks on a free trade agreement with the European Union and explore trans-Pacific trade consisting of 12 countries, ADB Philippines principal country specialist and acting country operations head Cristina Lozano said.
Abiad said the global economy could shrink by 0.4 percentage points (ppt) this year and 0.7 ppt in 2026 due to Trump tariffs.
Meanwhile, the US economy could slow by one ppt this year and 0.6 ppt the following year due to weaker demand for goods and services.
