Elevated vacancy rates in office buildings and weak demand for residential projects have tempered the sector’s growth, according to Bank of the Philippine Islands (BPI).
Moreover, the slowdown could persist due to the looming full ban of Philippine Offshore Gaming Operators, or POGOs.
Resilient PH economy
Despite these challenges, the broader economy remains resilient, posting 6 percent growth in the first half of 2024, driven by consumer spending and government construction projects.
Steady remittances, falling unemployment, and manageable inflation are expected to continue supporting the country’s economic performance.
“Lower inflation may boost consumption in the coming year, giving households more room for discretionary spending. Additionally, election-related spending could further stimulate economic activity,” BPI said in a statement.
“However, the recovery in household consumption may not be enough for the economy to reach the government’s growth target of 6.5-7.5 percent in 2025. Growth has to come from other structural drivers and sectors as well,” it added.
The banking giant hosted an economic outlook briefing, led by chief economist Jun Neri, on Tuesday.
The upside?
Monetary easing by the Bangko Sentral ng Pilipinas, through cuts in the reserve requirement ratio (RRR) and reverse repurchase (RRP) rate, could boost private sector construction.
BPI said other industries such as tourism, cold storage, logistics, data centers, and industrial estate development could also benefit.
“The favorable outlook for inflation gives the BSP the room to ease its policy further, with a potential reduction in December bringing the policy rate to 5.75 percent and a further cut to 5 percent in 2025,” the lender said.
Peso outlook
The Peso could strengthen next year if the current account deficit stays manageable, but it will remain sensitive to US Federal Reserve actions.
While Fed rate cuts may boost the Peso, its gains may be smaller than other emerging markets due to the country’s ongoing current account deficit.
Downside risks
BPI cited a host of risks that could dent growth expectations.
These include rising protectionism, higher tariffs, geopolitical tensions in the Middle East, and a resilient US economy could limit the ability of the BSP to cut rates.
“Moreover, inflation expectations can change just as quickly given the current global environment and the domestic supply shocks that can easily materialize. In this context, aggressive rate cuts may not be prudent,” BPI said.
“A cautious approach to policy rate cuts might be needed in order to offset these risks and ensure stability in the markets,” it added.
