By the Malaya Business Insight team Jimmy Calapati, Ruelle Castro, Angela Celis, Myla Iglesias, Irma Isip and Jed Macapagal
The Philippines may be seeing 2024 go with a renewed sense of resilience after having survived a significant series of weather-related disruptions to its agriculture that marked the latter part of the year. Now it faces 2025 with optimism about its economic and business prospects for 2025, although with a bit of caution about the impact of global uncertainty.
Given a strong performance of an average 5.8 percent gross domestic product (GDP) growth in the third quarter, and considering a pickup in consumption due to Christmas-related spending in December, the government is keeping its 6.0 – 6.5 percent growth target for 2024 and is seeing further expansion in the year ahead.
The National Economic and Development Authority (NEDA) said despite the challenges posed by the prolonged El Niño dry spell and consecutive strong typhoons brought by La Niña, the Philippines remains as one of the fastest growing economies in Asia.
NEDA said the government is optimistic about achieving its 2024 growth target, driven by structural reforms and strong domestic activity. Looking ahead, it has even widened its growth projections for 2025 to 2028 to 6 to 8 percent, reflecting confidence in the country’s ability to navigate evolving challenges.
This momentum is expected to further support the Philippines’ bid to attain upper middle-income country status by 2025.
Revenue exceeds targets
The government’s revenue performance in 2024 surpassed expectations, with total collections seen reaching P4.42 trillion by year-end, exceeding the target of P4.27 trillion. As a percentage of GDP, revenues are projected to hit 16.7 percent, the highest in 27 years.
Prudent fiscal management also led to a reduction in the fiscal deficit to 5.1 percent of GDP for the first three quarters, compared with 5.7 percent in the corresponding period of 2023.
Rate cut-friendly inflation
For the first time since the pandemic peaked in 2021 and brought economies the world over to their knees, the Philippines is seen likely to achieve its inflation target range of 2 to 4 percent this year.
Given this favorable inflation outlook, the Bangko Sentral ng Pilipinas (BSP) will find enough leeway to further cut interest rates within the first half of 2025. This will come after a triple 25-basis point rate cut earlier this year.
“Barring any unforeseen supply shocks, inflation can remain within the BSP’s target range next year,” Emilio S. Neri, Jr., senior vice president and lead economist of the Bank of the Philippine Islands (BPI), said.
However, Neri added that the BPI sees the central bank avoiding cutting rates aggressively in 2025 “as global price risks could thwart outsized monetary easing actions.”
“While the first half of the year may present opportunities, cutting rates in the latter half could be more challenging as the Federal Reserve’s outlook could shift in response to President (Donald) Trump’s potentially inflationary policies. In an adverse scenario, higher tariffs and mass deportations may re-ignite inflation in the US, which could force global central banks to pivot to monetary tightening,” Neri said.
Better management of inflation could lead to a more stable peso, which in the past week breached the P59:$1 level, a new record low.
Michael Ricafort, chief economist for Treasury Group of Rizal Commercial Banking Corporation, said the performance of the US dollar/peso exchange rate would still be “partly a function of intervention as consistently seen for more than two years already.”
Ricafort noted that last week, the US dollar/peso exchange rate went up for the second straight week.
“The exchange rate was also higher for most weeks over the past three months or since the latter part of September 2024 largely due to the Trump factor that could lead to protectionist policies that could lead to higher US inflation, fewer Fed rate cuts, slower global trade and overall GDP growth,” Ricafort added.
Investment boosters ‘CREATE MORE’
The Philippines is also banking on the Corporate Recovery and Tax Incentives for Enterprises Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act to sustain investment growth in the country from the level so far achieved.
Signed into law in November, Republic Act (RA) No. 12066, or the CREATE MORE Act, is an economic measure that extends the duration
of availment of tax incentives by 10 years to 27 years for strategic and high-quality investments. It allows registered business enterprises to enjoy enhanced deductions through a reduced corporate income tax rate of 20 percent; a 100 percent additional deduction on power expenses, and streamlined value-added tax refund process.
Luzon Economic Corridor
In April, a landmark agreement on creating the Luzon Economic Corridor was signed by the Philippines, Japan and the United States. The project seeks to connect Subic Bay, Clark, Manila, and Batangas through high-impact infrastructure projects, such as ports and railways, to attract major investments in clean energy, semiconductors, supply chains, as well as other forms of connectivity in the Philippines.
Free trade talks resume
In March, the Philippines and the European Union (EU) agreed to resume the long-stalled negotiations for a free trade agreement (FTA). The FTA aims to provide enhanced market access for goods, services and investments, going beyond the benefits of the Generalized System of Preferences.
The FTA seeks to ensure mutual market access and diversify supply chains, offering more opportunities for professionals and service providers. Furthermore, it aims to attract more EU investment in key sectors such as infrastructure, digital technology, research, renewable energy and green transition.
This December, the Philippines also issued an executive order implementing an FTA with South Korea, eyed for 2025 rollout. The FTA is expected to bolster trade between the two nations by mutually granting better market access.
Energy: More power projects
The year 2024 for the energy sector literally started with a bang. On January 2, 2024, the entire Panay Island was isolated from the Visayas Grid after multiple power plants tripped. Power interruptions were experienced in the country’s sixth largest island, comprised of the provinces of Aklan, Antique, Capiz and Iloilo. Supply was only fully restored after five days.
The government was prompted to ramp up efforts in completing the additional transmission lines in Panay, while also convincing investors to put up additional power generation projects.
In May, the National Grid Corporation of the Philippines completed the Mindanao-Visayas Interconnection Project, helping the country survive the summer months as it enabled the extra capacity in Mindanao to be utilized by Luzon and Visayas.
With a few days left before 2025 begins, stakeholders are expecting a better power supply scenario next year with the anticipated completion of additional power projects.
Agri hit by ‘perfect storm’
The Department of Agriculture (DA) describes the year 2024 as a period of a “perfect storm” – with problems ranging from El Niño to La Niña and volcanic eruptions.
Even as the DA continued to collate the official damage data, it acknowledged that overall, agriculture output in the country for 2024 will be lower than the year-earlier level as everything has suffered damage from the effects of too much heat, wind, rainfall and ashfall.
Animal diseases such as African swine fever and bird flu, as well as other threats from the Q fever, mad cow disease and foot-and-mouth disease have also pestered livestock in the country.
Given such scenario, the government was compelled to lower tariffs on imported rice and meat products to try to diversify sources of food products and temper the rise in retail prices.
The DA said it is also banking on the enactment of the Anti-Agricultural Economic Sabotage Law, which it sees as a deterrent to smugglers, profiteers, cartels and hoarders. The new policy classifies smuggling of rice and other agricultural products as “economic sabotage” that has become a crime punishable by life imprisonment, paired with fines five times the value of the agricultural and fishery products smuggled.
DA is also looking forward to the positive effects of the extension and amendments of the Rice Tariffication Law. It extended funding for rice industry modernization until 2031 and tripled the budget allocation aimed at enhancing food security.
The amended law also increased annual allocation for the Rice Competitiveness Enhancement Fund to P30 billion from P10 billion to bolster support for other initiatives in the sector.
The DA is very much hopeful that with the absence of El Niño next year and the anticipated positive effects of the two newly implemented agricultural laws, the sector is seen getting back on track for growth next year.
Environment
In 2024, the Department of Environment and Natural Resources (DENR) hosted the year’s international Board of the Fund for responding to Loss and Damage.
As host, the Philippines led the operationalization of the Loss and Damage Fund that is being utilized to assist developing countries that are particularly vulnerable to the adverse effects of climate change.
This is also the year when two more wetlands in the country were added to the list of internationally significant areas. The Sibugay Wetland Nature Reserve in Zamboanga Sibugay and the Del Carmen Mangrove Reserve in Siargao Island Protected Landscape and Seascape are the latest additions to Wetlands of International Importance located in the Philippines.
The agency is also in the process of bidding out water rights for private development to properly utilize water resources in the county, apart from helping in setting up water refilling stations operated by local water districts in order to provide the public with bottled water services that is more affordable than what is currently offered by the private operators.
Further improving policies that govern the local mining sector are also underway, starting with the setting up of a digital application process to streamline the tedious process and cut short the waiting time for mining companies to operate, the DENR said.
Telcos expanding coverage
Local telecom operators in the Philippines will continue to expand their networks, focusing on the Geographically Isolated and Disadvantaged Areas.
This expansion is in line with the directives issued by President Ferdinand Marcos Jr. to improve connectivity in underserved regions and bridge the digital divide across the country.
Despite lower capital expenditures (CapEx) this year, telcos are aggressively pursuing network expansion and new services for mobile and fixed broadband customers.
The strategy is driven by the need to keep growing, despite competitive pressures, and address increasing demands for faster, more reliable connectivity.
PLDT Inc. has set its capex range of P75 billion to P78 billion for 2024, lower by 12 percent compared with P85 billion in 2023.
Globe Telecom Inc.’s digital revenue growth this year is expected to come in lower, while its $1 billion in capital expenditures is 23 percent lower than last year’s capex. This is in line with the company’s move to optimize spending and remain on track to achieve positive free cash flow by 2025.
The third telco player, Dito Telecommunity Corp., said it successfully completed its fifth and last regulatory technical audit, and exceeded its five-year network commitment rollout with the government.
