THE Philippine economy’s growth is expected to be on track to grow to its potential this year, but GDP may fall below target in 2025 and 2026, according to the Bangko Sentral ng Pilipinas (BSP).
In its Monetary Policy Report (MPR), the BSP said the government’s target of 6 to 7 percent this year remains achievable, but may fall below expectations in the next two years.
The Development Budget Coordination Committee (DBCC), in its last meeting in June 2024, had set a growth target for the economy of 6.5–7.5 percent in 2025 and 6.5–8 percent in 2026.
“Growth prospects are relatively stable for the rest of the year, driven by robust construction spending and the timely implementation and expanded coverage of various government programs,” the BSP, however, said.
BSP noted that higher consumption will be driven by higher real wages and stable Overseas Filipino remittances. Real wages, BSP said, could see a 5-percent increase annually in 2025 and 2026, consistent with the historical average.
The expected increase in consumption will support growth in the next two years. BSP noted aggregate demand accounted for a significant part of the country’s GDP growth in the second quarter.
According to the BSP, aggregate demand, which includes household consumption, government spending, investments or capital formation, and exports, contributed 3.2 percentage points, 1.7 percentage points, 3 percentage points, and 1.2 percentage points to GDP growth in the second quarter, respectively.
BSP said household consumption accounts for 67.8 percent of the country’s GDP in the second quarter.
Public spending, the BSP added, also posted faster growth driven by higher maintenance and operating expenses for social, health, and education programs.
“Spending also rose for infrastructure projects, including roads, bridges, flood control systems, hospitals, multipurpose buildings, and railways,” BSP said.
“Interest payments, transfers to local governments, and subsidies for irrigation system restoration and development contributed further to the rise,” it added.
The BSP also noted that based on its Policy Analysis Model for the Philippines (PAMPh), output gap will be closed in 2026 despite remaining in negative in 2024 and 2025.
PAMPh
THE PAMPh is a monetary policy model for a small open economy like the Philippines. The BSP earlier said it will adopt the new forecasting and policy analysis model next year to make monetary policymaking in the country more responsive to current trends.
Currently the BSP uses the Multi Equation Model (MEM) which captures the impact of monetary policy transmission channels and has an error correction framework that balances long-run and short-run factors. But by 2025, the BSP will start using the PAMPh—a larger model that takes into consideration aggregate demand and supply, fiscal considerations, the impact of monetary policy decisions, labor, foreign and external factors, and others.
BSP Monetary and Economics Sector Francisco G. Dakila Jr. earlier said the adoption of the PAMPh does not mean they will abandon the MEM. The MEM will still be used but it will no longer be the baseline model. Dakila noted that the PAMPh is a larger model that consists of more sectors. If the MEM has 24 equations, the PAMPh has 290 equations. He said the new baseline model is more complex.
The complexity of the model also allows it to create a path for monetary policy. This means the model will be able to provide guidance on policymaking decisions, which is the primary feature that distinguishes it from the MEM.
Image credits: BusinessMirror/Nonie Reyes
