Nomura Global Research expects that economic growth in the Philippines will be better next year but will still not reach the official target of six percent.
In its Asia Macro Outlook 2025 report, Nomura said it expects gross domestic product (GDP) growth to gradually improve to six percent year-on-year in 2025 from 5.6 percent in 2024, in line with consensus but in still on the low side of the government's latest forecast of 6-8 percent.
“We think public investment spending will remain a significant engine of growth, as the government pushes for more progress on infrastructure projects, which remain a top priority of the Marcos administration. This push will gain further strength from the mid-term elections on May 12, 2025,” said Nomura. "Should, in our view, continued infrastructure implementation begin to encourage private investment spending when borrowing costs fall and the BSP (Bangko Sentral ng Pilipinas) eases monetary policy," it added.
Nomura said that the more favorable outlook on inflation as well as positive wage increases are likely to support the recovery in consumer sentiment and thus household spending, which is starting to recover and actually help the GDP growth gained some momentum in the third quarter.
However, the global research firm said strong external challenges are likely to provide some offset, particularly in the second half of 2025.
“As we have highlighted, the Philippines is among the most vulnerable in the region to (US president-elect) Trump's policy proposals and is likely to be caught in the middle of worsening US-China relations. Therefore, we expect slow growth in exports of goods and services, with tariffs likely to weigh on external demand, while workers' remittances, which support domestic consumption, are likely to be negatively affected by stricter immigration policies in the US, similar to Trump's first term,” Nomura said.
This underscores that foreign direct investment (FDI) inflows are more limited compared to regional peers and may be further affected by rising tensions in the South China Sea, if the US provides less security in the region under by Trump amid China's increasing aggressiveness in disputed waters.
“As a result, we think both deficits will remain significant. We expect the fiscal deficit to narrow to 5.5 percent of GDP in 2025 from 5.9 percent in 2024, but this is still above the government's medium-term fiscal framework (MTFF) targets of 5.3 percent, and above also the pre-COVID average of 2.4 percent,” Nomura said.
It added that MTFF targets are likely to be difficult to achieve due to elections and spending priorities.
