ECONOMIC growth could still fall below target this year and in 2025 despite recent downward revisions, the Bangko Sentral ng Pilipinas (BSP) said in its latest Monetary Policy Report.
The outlook of missed gross domestic product (GDP) growth targets has been included in the policy reports since August of last year, with the central bank citing factors such as the impact of policy rate hikes that are only expected to peak in 2024.
GDP growth fell below the 6.0- to 7.0-percent target in 2023 at 5.6 percent, and the first-quarter result for this year is also below the same goal — adopted in March from 6.5 to 7.5 percent previously.
Next year's target has also been trimmed to 6.5-7.5 percent from 6.5-8.0 percent.
"The outlook on domestic economic activity remains intact, even as the economy is projected to operate slightly below potential," the BSP said.
It added that the impact of the 450 basis points of rate hikes beginning 2022 — the policy rate currently stands at a 17-year high of 6.5 percent — is now expected to peak in the second half of this year.
Higher crude oil prices and positive real interest rates could also weigh on demand, the BSP continued, but an improvement in exports amid a more favorable outlook may likely support GDP.
The output gap — the difference between actual and potential output — "may turn slightly negative but will likely close in the latter part of 2025."
"Domestic economic activity could ease as the effects of previous interest rate adjustments and declining real incomes, along with the possibility of tepid global growth, temper aggregate demand," it added.
"On balance, the latest assessment of the output gap indicates potential deflationary pressures going forward."
Labor market improvements, continued investment growth and stable infrastructure spending, meanwhile, could drive productivity and potential output.
Key interest rates have remained unchanged since October last year when the BSP's policymaking Monetary Board ordered an off-cycle 25-basis-point hike as inflation spiked.
With the consumer price growth outlook having improved, BSP Governor Eli Remolona Jr. has said that rate cuts could start as early as August.
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