THE economy is on track to grow near potential, the Bangko Sentral ng Pilipinas (BSP) said, and growth is now expected to hit the 6.0- to 7.0-percent target this year. "The outlook in domestic economic activity remains firm," the central bank said in its latest Monetary Policy Report, with latest baseline forecasts pointing to within-target growth for 2024 and misses for 2025 and 2026. The goals for both years are 6.5-7.5 percent and 6.5-8.0 percent, respectively. A 6.3-percent expansion in the second quarter brought first-half growth to 6.0 percent, at the bottom end of the 2024 target. "Growth prospects are relatively stable for the rest of the year," the BSP said in the August policy report, "driven by robust construction spending and the timely implementation and expanded coverage of various government programs." Three months earlier, the BSP had said that while the outlook remained "intact," the economy would "operate slightly below potential" and that growth could fall below the 2024 and 2025 targets. In the latest report that was released on Monday, it said that the output gap — the difference between actual and potential economic output — would "remain slightly negative in 2024 and 2025 but will close in 2026." "Higher consumption, driven by higher real wages and stable overseas Filipino remittances, could offset the negative impact of previous policy interest rate adjustments on demand," it added. "This will bring domestic output closer to its potential over the policy horizon." Labor market improvements and continued investment growth are also expected to buoy potential output, which could be accelerated by key reforms aimed at promoting investments and business activity. The BSP's policymaking Monetary Board began easing last month, ordering a 25-basis-point cut that brought the policy rate down to 6.25 percent. Further reductions are expected to be announced well into next year, possibly even in 2026, to bring the rate back to or near where it was — 2.0 percent — before tightening began in May 2022 when inflation started surging. Consumer price growth is estimated to fall within the 2.0- to 4.0-percent target this year with both the baseline and risk-adjusted forecasts trimmed to 3.4 percent and 3.3 percent, respectively, from 3.5 percent and 3.8 percent in the May policy report. "The balance of risks to the inflation outlook now leans toward the downside for 2024 and 2025, with a slight tilt toward the upside for 2026," the BSP said. Higher fares and power rates were tagged as upside risks and assigned probabilities of "medium" and "high," respectively. Lower rice prices due to a reduction in the import duty, meanwhile, was identified as the primary downside risk.
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