Nomura Global Markets Research sees Philippine economic growth improving next year, backed by public investment spending,

In its Asia Macro Outlook 2025 report released recently, Nomura said Philippine gross domestic product (GDP) growth is projected to hit 6.0% in 2025 from 5.6% this year.

The January-September GDP growth settled at 5.8 percent, still short of the government 6% to 7% target.

“We think public investment spending will remain a significant growth engine, as the government pushes for more progress on infrastructure projects, which remain a top priority of the Marcos administration,” Nomura said.

“This push will get an added impetus from the mid-term elections on 12 May 2025. Sustained infrastructure implementation should, in our view, start to crowd in private investment spending when borrowing costs are declining and BSP (Bangko Sentral ng Pilipinas) is easing monetary policy,” it added.

Nomura said easing inflation, as well as positive wage growth, will help boost household spending.

According to Nomura, the low inflation will also allow the BSP to further ease policy rates.

The central bank has so far reduced key interest rates by a total of 50 basis points (bp) this year.

“We expect BSP to cut its policy rate by an additional 100bp in this cycle (25bp each in December and in the first three monetary board meetings of 2025). As was clear in BSP’s guidance in its last two decisions, the next moves will largely be driven by the 2025 and 2026 inflation outlooks rather than data for the rest of 2024,” it said.

Nomura forecast headline inflation to hit 2.7% in 2025 and 3%in 2026 which is well within the BSP’s 2% to 4% target range, driven by supply-side measures of the government and our lower oil price assumptions, as well as stable core inflation.

Aside from reducing policy rates, Nomura said it also forecasts a 200 basis points further reduction in banks’ reserve requirement ratio (RRR) by mid-2025.

Nomura, meanwhile, said risks to the country’s growth outlook include the possible sharply weaker global growth and higher global trade protectionism.

It added the tensions in the South China sea cannot discounted as a factor that could cause headwinds.

“Escalating geopolitical tensions, particularly in the South China Sea, could also generate more growth headwinds. A resurgence in oil prices and renewed supply shocks on food prices could push headline inflation higher, limiting monetary easing,” Nomura said.

PNA PHOTO