Manila: Philippine economic growth is expected to accelerate this year on the back of higher investments and consumption, an economist of UBS Investment Bank Global Research said. In a virtual briefing, UBS Investment Bank Global Research Senior ASEAN and Asia Economist Grace Lim projected that the Philippine economy would grow by 5.9 percent this year, up from 5.6 percent in 2024.

According to Philippines News Agency, Lim highlighted an improving growth outlook for the Philippines, driven by domestic demand as both investment and consumption are set to accelerate in 2025. She noted that private investments would gradually recover as financial conditions become more favorable and consumer sentiment improves. Solid labor income growth and the easing of food inflation are also expected to bolster consumption growth. Lim emphasized the significance of consumption amidst improving fundamentals and a resilient labor market, describing it as a major support for Philippine demand.

Lim also pointed to government spending and growth in services exports as contributors to economic growth. She underscored the often overlooked strength of services exports, notably within the BPO sector, which she expects to remain resilient throughout the year.

Regarding the impact of potential trade tariff escalations, Lim described the Philippines as a “rather defensive market,” noting its domestic orientation with investment accounting for 23 percent and consumption over 70 percent of GDP. She suggested that the Philippine peso could outperform in the region under such circumstances, although universal tariffs might pose weaker prospects for currencies overall.

On the monetary policy front, Lim stated that easing inflation could enable the Bangko Sentral ng Pilipinas (BSP) to reduce policy rates by 50 basis points this year, following a 75 basis point cut last year. While the BSP maintained policy rates during its first meeting of the year due to global uncertainties, Lim viewed this as a prudent “wait-and-see” approach. She anticipates further rate cuts in 2025, contingent on inflation remaining manageable.

Lim also noted the positive effects of the recent reduction in banks’ reserve requirement ratio by the BSP. The 200-basis point cut, effective March 28, aligns with ongoing financial market reforms aimed at enhancing liquidity management and deepening market sophistication.