BSP easing may continue as weak growth drags

THE BANGKO SENTRAL ng Pilipinas (BSP) may further ease this year as the corruption scandal may continue to dampen government spending and economic growth, Nomura Global Markets Research said.

In a report dated Jan. 9, Nomura Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles and Macroeconomic Research Analyst Yiru Chen said the BSP could deliver one 25 basis points (bps) each at its February and April meetings.

“Our forecast is underpinned by our more cautious view on the growth outlook, which is the overriding policy consideration for BSP,” they said. “The negative output gap has widened sharply, adding to a benign inflation outlook.”

The Nomura analysts see Philippine gross domestic product (GDP) growing below 4% in the last quarter of 2025 to bring the full-year print to 4.7%, falling short of the government’s 5.5%-6.5% goal.

If realized, this would mark a sharp slowdown from the 5.7% growth posted in 2024.

“We believe the ‘bad scenario’ continues to play out regarding the impact on growth of the ongoing government corruption scandal via a sharp drop in public sector spending amid increased scrutiny,” Mr. Paracuelles and Ms. Chen said.   

Government spending fell for the fourth consecutive month in November after slipping by 9.61% year on year to P498.3 billion.

Expenditures have declined since August following the corruption scandal that embroiled government officials and private contractors in kickback allegations from anomalous flood control projects.

Household spending likewise eased to 4.1% in the third quarter from 5.2% last year, marking the slowest clip seen in over four years.

Nomura noted that the ongoing flood control mess could also hit private investment spending in the near term.

For this year, the think tank expects the economy to expand around the lower end of the administration’s recently revised 5%-6% target at 5.3%.

“We expect a rebound in growth only in (the second half), helped by base effects and the government implementing catch-up spending plans,” Mr. Paracuelles and Ms. Chen said, adding that the local economy may face risks if global growth weakens and public spending remains slow.

The BSP earlier said that they are approaching the end of their easing cycle even as their growth outlook remains clouded.

BSP Governor Eli M. Remolona, Jr. has left the door open for one more cut at its Feb. 19 review, though noted it could be “unlikely” considering existing economic data and as the current policy rate is already near their neutral rate.

The Monetary Board has lowered key borrowing costs by a total of 200 bps since the start of its easing cycle in August 2024, bringing it to an over three-year low of 4.5%.

Still, Mr. Remolona said a weaker-than-expected growth could prompt them to deliver two reductions this year.

The BSP projects the economy to have grown by 4.6% by end-2025. It sees growth to pick up to 5.4% in 2026 and 6.3% in 2027.

NARROWER DEFICIT
Meanwhile, Nomura said the government’s budget gap may narrow to 5.1% of its GDP this year amid ongoing fiscal tightening.

Latest Treasury data showed that the budget deficit fell by an annual 26.02% in November to P157.6 billion, reversing from the P11.2-billion surplus in October.

“Given the fiscal tightening, we forecast a narrowing of the fiscal deficit to 5.1% of GDP in 2026 from 5.5%, slightly outperforming the 5.3% target in the medium-term fiscal consolidation framework but still well above the pre-COVID average of 2.4%,” Mr. Paracuelles and Ms. Chen said.

On the other hand, Nomura said the Philippines could earn a credit rating upgrade if the government manages to resolve the flood control corruption issue in the next 12 months.

In November, S&P Global affirmed the Philippines’ long-term “BBB+” and short-term “A-2” credit ratings with a “positive” outlook, as it expects growth recovery despite the impact of the corruption scandal on the economy. 

The government seeks to achieve the “A”-level credit rating.

Meanwhile, a “positive” outlook means the Philippines’ credit rating could be raised within 24 months if improvements are sustained.

However, Nomura noted that failure to address the issue could prompt S&P to revert its outlook on the Philippines to “stable” or even downgrade it to “negative.” — Katherine K. Chan