Does weak business sentiment portend weak GDP for Q1 2025?
The Bangko Sentral ng Pilipinas (BSP), in its latest monetary policy report, claimed that the Philippines’ economic growth could be just “near the lower bound” of the government’s growth target of 6-8% from 2025 through 2028. We would call this a demonstration of the BSP’s independence and autonomy, and perhaps a marker of future monetary policy.
But the BSP is not the only institution that has warned of a possible growth slowdown. The Asian Development Bank (ADB) downgraded its growth prospects for the Philippines from 6.2% to just 6.0%. At that pace, the Philippines remains one of the fastest-growing economies in Southeast Asia. The Economic and Social Committee for Asia and the Pacific (ESCAP) shares the same projection.
Last month, Moody’s Analytics also lowered its growth forecast for the country, from 6.0% to 5.9% for this year and from 6.1% to 5.8% for next year. Statistical dampeners include the BSP's latest report that foreign direct investment (FDI) actually contracted by 20% in January 2025. The Purchasing Managers’ Index (PMI) also traced a steady-but-lower reading for the first two months of 2025 compared to the last three months of 2024 and to the comparable reading for the first three months of 2024.
If there is another advanced indicator of economic growth, it is the BSP’s business expectations survey (BES). For the first quarter of 2025, business sentiment was less optimistic, as shown in the large drop in the confidence index (CI) of 13.3 percentage points, to 31.2 percent in Q1 2025 from 44.5 percent in Q4 2024. A more positive view emerged for the next quarter, Q2 2025, with business confidence stronger, as shown by the increase in the overall CI to 45.4 percent from the 40.3 percent recorded in the Q4 2024 survey results. For the next 12 months, the business outlook was generally less optimistic across all regions outside the National Capital Region. Based on the survey results, firms anticipated: (a) higher inflation; (b) the adverse effects arising from ongoing geopolitical tensions, and (c) peso depreciation.
Business sentiment, planned activities and expansion have been found to be closely correlated with the actual national income accounts.
Since the survey was conducted from January 8-March 1, 2025, business respondents must have already got wind of the coming announcement of US President Trump’s reciprocal tariffs, which will not only impoverish the American people with high prices but will also destroy the current global trade system. But it might have been too early to draw any definitive tariff schedule at the time, especially among exporters. As such, the results could have been less optimistic and the correlated real GDP lower.
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