The domestic-driven Philippine economy may grow 5.9 percent this year, with the peso “slightly” outperforming its regional peers should the global trade war escalate, UBS Investment Bank Global Research said.
“Generally, we see the Philippines as a rather defensive market in the event of potential trade tariff escalation,” Grace Lim, economist at UBS Investment Bank Global Research for ASEAN and Asia, said.
“That’s because the Philippines is primarily domestic oriented,” she said.
“So even in the case of trade tariff escalation, the Philippine peso could be slightly a relative outperformer in the region,” Lim added.
In pegging economic growth at 5.9 percent, Lim said UBS sees an improving outlook for the Philippines.
“As I mentioned earlier, we forecast GDP (gross domestic product) growth to accelerate from 5.6 percent in 2024 to 5.9 percent in 2025, which is close to trend,” she said.
Lim expects the expansion in GDP to still be driven by domestic demand, with both investment and consumption accelerating in 2025.
“On the consumption front, we believe that the tailwinds of solid labor income growth and gradually easing food inflation should be supportive of that sector,” Lim said.
UBS sees the labor market still holding up, with the unemployment rate “low and stable” at about 3 percent.
The financial services company expects consumption to recover gradually starting from the second quarter of 2025 onwards.
“In addition, we think that government spending can provide some support to growth, particularly in the first half of 2025,” Lim said.
She said the services sector continues to enjoy a “bright spot,” especially in the business process outsourcing sector.
Private investment is expected to recover gradually as financial conditions become less restrictive and consumer sentiment gradually picks up, Lim added.
Meanwhile, she said the Bangko Sentral ng Pilipinas (BSP) has room to cut this year, in April and September, given the manageable inflation that is to remain contained within the target range this year and next year.
At its monetary policy meeting on February 13, the Monetary Board decided to keep the BSP’s Target Reverse Repurchase Rate at 5.75 percent, saying inflation expectations remain within the target range.
“The latest inflation forecasts are not materially different from the previous forecasts in December,” the board said.
The risk-adjusted inflation forecast rose to 3.5 percent for 2025 from 3.4 percent in the previous policy meeting. The risk-adjusted forecast for 2026 is unchanged at 3.7 percent.
The BSP is “slightly more advanced” in the rate cut cycle compared to its southeast Asian peers., Lim said.
