Economy to fare better in 2nd half

The Philippine economy is expected to fare better in the second half of the year, as easing interest rates could lift consumption and improving external climate may boost trade, according to Moody’s Analytics.

“The economy will fare better this year, especially in the second half. Fading inflation will give the Bangko Sentral ng Pilipinas (BSP) confidence to lower borrowing costs,” Moody’s Analytics said in its weekly report released on Monday.

Headline inflation is expected to cool down in the coming months due to favorable base effects. A BusinessWorld poll of 16 analysts last week yielded a median estimate of 3.1% for January inflation, which is within the 2.8-3.6% month-ahead forecast of the BSP.

If realized, this will be the second consecutive month that inflation will be within the BSP’s 2-4% target band. It will also be slower than the 3.9% print in December and 8.7% a year ago.

However, Moody’s noted that household spending will be under pressure in the first half.

“Volatile inflation prints in the first half of the year will persuade the BSP to stay on hold, leaving us to expect its first rate cut to be in June at the earliest,” it said.

To tame inflation, the Monetary Board hiked borrowing costs by a total of 450 basis points (bps) from May 2022 to October 2023, bringing the key rate to a 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. earlier said the central bank is still hawkish, and is prepared to tighten as necessary amid risks to inflation. He hinted that the BSP may consider cutting borrowing costs in the second semester.

“As borrowing costs ease, private consumption and investment should benefit. An improving external climate will bolster trade, and an expected upturn in demand for semiconductors and electronics will brighten prospects in the second half,” Moody’s Analytics said.

The Philippine economy grew by 5.6% in 2023, slower than the 7.6% expansion in 2022 and fell short of the government’s 6-7% target.

In the fourth quarter, gross domestic product (GDP) expanded by 5.6%, slower than the revised 6% GDP growth in the previous quarter and the 7.1% expansion a year ago.

“On the expenditure front, households and private investment did the heavy lifting in the final quarter. Easing inflation, a tight labor market, and a healthy inflow of remittances gave consumers confidence to spend,” Moody’s said.