Analysts have lowered their growth projections for the Philippines this year following weaker-than-expected economic performance in Q1, adding to speculation that the Bangko Sentral ng Pilipinas (BSP) might have to reduce interest rates further to stimulate demand.

Although household consumption picked up and government spending rose ahead of the elections, the country's GDP increased by just 5.4% year-on-year in the first quarter, slightly above the previous quarter's 5.3% but still falling short of market forecasts.

Growth in the first quarter also lagged behind the 5.9% expansion recorded during the same period in 2024 and fell short of the government’s target range of 6-8% for the year.

Furthermore, in its Asia Economic Monthly report, Nomura Global Markets Research characterised the first-quarter performance as “disappointing,” citing subdued investment spending and sluggish external demand as key contributing factors.

“A key source of the downside surprise was investment spending growth, which we believe suggests businesses have already turned cautious amid surging global trade uncertainty, even in a less open economy,” according to Nomura research analysts Euben Paracuelles and Nabila Amani.

Nomura has downgraded its growth forecast for the Philippine economy, lowering its 2025 GDP projection to 5.3% from the earlier estimate of 5.9%. The forecast for 2026 was also reduced, from 6.1% to 5.6%, The Philippine Star reports.

Whereas HSBC Global Research has also revised its outlook for the Philippine economy, now expecting a growth rate of 5.6% for this year, down from its earlier forecast of 5.9%.

“We expect growth in the Philippines to weaken further in the second half of 2025 as trade uncertainties and challenges put a drag on the global economy. Goods exports will likely slow down as tariffs cascade throughout the globe,” said HSBC economist for ASEAN, Aris Dacanay.

With economic growth projected to fall short of the government’s 6-8% target, economists anticipate that the central bank will maintain its easing cycle. Both Nomura and HSBC forecast that policy rates could decline to around 5% by the end of the year

Nomura expects the BSP to implement a total of 75 basis points in rate cuts this year, bringing the terminal rate down to 4.75%. Meanwhile, HSBC projects the central bank will reduce rates to 5%, even if the US Federal Reserve does not ease, citing stable inflation as a supportive factor.

“The benign inflation outlook remains underpinned by a negative output gap, low crude oil prices and the government maintaining supply-side measures,” Paracuelles and Amani stated.