BANK of the Philippine Islands (BPI) expects the economy to return to 5% growth next year, calling the third-quarter reading of 4% an anomaly and arguing that the government could eventually get a handle on the issues holding spending back.
“Next year, I think the economy should still grow about 5%. I think the Q3 number might be a one-off. It might spill a little bit to Q4 as the government tries to understand its spending. But I think as we roll into next year, we should hopefully get back to the 5% handle,” BPI President and Chief Executive Officer Teodoro K. Limcaoco told reporters on the sidelines of an event.
Growth of 5% would be lower than the government’s official 6-7% gross domestic product (GDP) growth target for 2026.
Mr. Limcaoco said the third-quarter GDP reading was the result of the government having to rein in spending as it grappled with corruption in public works, particularly flood control projects.
“I guess it’s a little bit disappointing but not quite unexpected. I think the magnitude of the drop was a little surprising to everyone. But we (thought) that Q3 GDP would be slightly lower. We realized that with the current concerns about flood control, that government spending had been, I guess, reduced as they try to get things in order,” he said.
He added that bad weather dampened consumer spending during the period.
“Anecdotally, we’re hearing from our retail clients that September was a pretty weak month, primarily because of the weather,” Mr. Limcaoco said.
GDP grew 4% in the three months to September, the weakest in over four years and well below the 5.5% expansion in the second quarter and the 5.2% clip from a year earlier. It was also way below the 5.3% median estimate in a BusinessWorld poll of 18 analysts and economists.
In the first nine months, GDP averaged 5%, well behind the pace of the government’s 5.5%-6.5% full-year target.
Mr. Limcaoco said the muted third quarter growth reading, paired with controlled inflation, points to a rate cut by the Bangko Sentral ng Pilipinas (BSP) in December.
However, he noted the central bank still needs to weigh how the Federal Reserve’s own easing cycle affects the peso.
“Obviously, some economists are saying that with the 4% Q3 growth, that there’s room for the BSP to cut. I think the BSP will have to take a look also at what the Fed is doing because they’ve got to watch out. Otherwise, there (could be an impact on) the currency,” he said.
The BSP last month reduced benchmark rates by 25 bps for a fourth straight meeting, bringing the policy rate to 4.75%. Since starting its easing cycle in August last year, the Monetary Board has cut rates by a total of 175 bps.
BSP Governor Eli M. Remolona, Jr. has said that another cut is possible at the central bank’s Dec. 11 meeting and further into next year amid a softening growth outlook. — Aaron Michael C. Sy