PHILIPPINE economic growth will likely pick up this year but still fall below target, the research unit of Swiss-based multinational UBS said.

"For the Philippines, we are quite cautiously optimistic," UBS Senior Asean Economist Grace Lim told reporters on Wednesday.

Lim said that UBS was keeping its 5.7-percent forecast for Philippine growth, "with some upside risk to consumption if inflation falls quickly enough."

While higher than the 5.6 percent posted last year, it is still below the government's 6.5-7.5 percent target.

UBS expects growth to improve to 6.0 percent in 2025, also below the official medium-term goal of 7.5-8.0 percent.

Lim said that public-private partnership (PPP) projects, "if they do come through, could be another source of growth."

The PPP Center is currently evaluating 117 projects amounting to P2.5 trillion. It expects to approve 15 solicited projects this year and an additional 13 in 2025.

Lim noted that the economic impact of such large-scale investments would be spread out, "so, in terms of the growth perspective ... we are cautiously optimistic that it would be an upside risk for investment and GDP (gross domestic product) growth."

Despite the inflation risk, meanwhile, she noted that a robust labor market and substantial employment growth had played a crucial role in more than compensating for the negative effects.

"Now that inflation is likely to fall ... the only pockets of price pressures we are seeing is in terms of rice," Lim said.

"Everything else seems to be easing quite nicely. The improvement or tailwinds from reduced inflation could be another upside to consumption if this is sustained," she added.

Inflation is expected to decline to 3.0 percent this year from 6.0 percent last year. This is well within the 2.0-4.0 percent target of the Bangko Sentral ng Pilipinas (BSP).

"Apart from rice inflation, core inflation is quite well contained, supporting our view that inflation will settle around 3.0 percent by the end of the year as rice supply constraints ease," Lim said.

"A resilient labor market should support consumption, whilst lower commodity prices should help to ease the current account drag," she added.

If current trends persist, Lim said the BSP could implement 100 basis points of interest rate cuts this year.

The central bank's policy rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes since May 2022 as inflation started surging.

Monetary authorities have paused for the last three policy meetings and are expected to begin easing in the second half or June at the earliest.

Lim also said that Philippine banks would likely post credit growth of slightly above 10 percent this year.

"We don't see any evidence of asset quality risk. And as rates come down a little bit, that could actually spur demand for loan growth," she said.

"Our Philippine banks analyst is also positive on asset quality in the sector. Also, if there are big PPP projects coming through, that could also spur some demand for loans — that might be maybe towards the second half of the year."