THE WORLD BANK is confident the Philippine economy will continue to perform well this year and in 2025, as easing interest rates will likely boost domestic consumption.
“We are confident, we’re relatively confident that the economy will continue performing well,” Gonzalo J. Varela, World Bank lead economist and program leader of the equitable growth, finance and institutions practice group for Brunei, Malaysia, the Philippines, and Thailand, told reporters on Tuesday.
The World Bank expects the country to grow by an average of 5.9% from this year until 2026. It projects Philippine GDP growth at 5.8% in 2024.
Economic managers are targeting 6-7% growth this year, and 6.5-7.5% in 2025.
Despite the impact of recent typhoons, Mr. Varela said he sees “some persistence in high economic activity” and expects a strong economic performance in the third quarter.
“On the one hand, you have expectations of the BSP (Bangko Sentral ng Pilipinas) loosening monetary policy, and that will stimulate consumption and investment, at the same time, you have a global economy that is going to be more difficult to navigate,” he said.
The BSP began its easing cycle on Aug. 15 with a 25-basis-point (bp) cut, bringing the policy rate to 6.25%.
Mr. Varela said the BSP’s next rate cut will depend not just on easing inflation but also on the US Federal Reserve.
“It will depend on what happens with the Fed in the next couple of weeks. So if the Fed decreases interest rates, as we are expecting for the next 12 months, or large reductions in interest rates, I think that will give space for BSP to loosen monetary policy,” he said.
The Federal Reserve is now widely expected to undertake a smaller 25-bp interest rate cut at its meeting next week.
BSP Governor Eli M. Remolona, Jr. has previously said they could cut rates by another 25 bps within the year. The Monetary Board’s last two policy-setting meetings this year are scheduled for Oct. 17 and Dec. 19.
GLOBAL SLOWDOWN
However, a slowdown in the global economy could impact the Philippines’ growth trajectory.
“We also need to keep in mind that we’re in a world in which growth is slower. So global growth being slower, you know, the Philippines cannot escape gravity,” Mr. Varela said.
The World Bank forecasts a 2.6% GDP growth for the global economy this year, and 2.7% expansion in 2025 and 2026.
“The Philippine economy, like many others, is vulnerable to global economic downturns. A slowdown in the global market can lead to decreased exports, lower remittances from Filipinos working abroad, and higher borrowing costs,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.
To temper the impact of a global slowdown, Mr. Roces said rate cuts by the BSP would “stimulate domestic demand and stabilize the peso.”
“However, effectiveness will always depend on the severity of the global slowdown amidst the strength of the Philippine domestic economy, and the coordination of monetary and fiscal policies,” he added.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also said in a Viber message that lower interest rates would spur loan demand, leading to a pickup in GDP growth, investments, employment, trade, and other business activities.
In a separate Viber message, Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said the global slowdown is not expected to have a significant drag on the Philippines’ economy due to the midterm elections in May 2025.
Historically, the economy gets a boost from increased spending during election years.
FINANCING PROJECTS
Meanwhile, Mr. Varela said the World Bank will continue to provide financing for projects in the Philippines even as it becomes an upper middle-income economy.
“We expect the program to keep growing… We expect to keep supporting the Philippines in that respect. The transition to upper middle-income branch status, in terms of cost of financing, what we need to keep in mind is that interest rates are expected to decline globally and that will also impact on the cost of financing that the World Bank can offer,” he said.
According to the World Bank’s latest income classification data, the Philippines remained a lower middle-income country with a gross national income (GNI) per capita of $4,230 in 2023, higher than $3,950 in 2022.
The Marcos administration is aiming to achieve upper middle-income status for the country by 2025.
To become an upper middle-income country, the Philippines now needs to have an estimated gross national income (GNI) per capita of $4,516 to $14,005. This is higher than the previous range of $4,466 to $13,845.
Mr. Varela also said the World Bank is working with its partners to reduce the cost of financing by blending grants with loans, especially for climate change mitigation or adaptation projects.
“The Philippines is in the ‘ring of fire’ of typhoons. It’s the number one country most affected by natural disasters globally. So, investing in resilient infrastructure is crucial,” he added.
Meanwhile, Mr. Varela said that the World Bank’s Country Partnership Framework for 2025 to 2028 is expected to be approved early next year.
Under the new framework, World Bank loans would be focused on increasing firms’ and farms’ productivity, bolster a competitive business environment, ensure inclusive finance, improve health and nutrition.
The World Bank also aims to help enhance education quality and skills, improve resilience to shocks and climate change, and provide better services to conflict-affected and underserved areas, and help in the country’s transition to a greener economy.
The World Bank is also expected to approve the Philippine Second Digital Transformation development policy loan (DPL) and Digital Infrastructure Project around October to November, Mr. Varela said.
The government is seeking a $750-million loan for the Second Digital Transformation DPL, which aims to fast-track the countryside adaptation of digital technologies. It also seeks a $287.24-million loan for the Digital Infrastructure Project, which seeks to improve broadband connectivity in the country. — Aaron Michael C. Sy