The International Monetary Fund (IMF) has revised its economic growth outlook for the Philippines, reflecting a cautious stance amidst global economic challenges.
The IMF now expects the Philippine economy to grow by 5.3 percent in the current year, down from its previous forecast of 6.2 percent.
This adjustment is attributed to the impact of global shocks and their contribution to persistent high inflation within the country.
During a press briefing on Tuesday, IMF officials also made changes to their 2024 gross domestic product (GDP) projection, revising it upward to six percent from the earlier estimate of 5.5 percent released in late July.
The IMF’s previous World Economic Outlook in April 2023 had projected a six percent GDP growth for the Philippines in the current year and 5.8 percent for 2024.
Jayanath Peiris, the IMF mission head, and Ragnar Gudmundsson, IMF resident representative, presented the findings of the Article IV Consultation Mission 2023 after engaging with various government agencies to assess the country’s economic performance.
They acknowledged the Philippines’ resilience in recovering from the pandemic’s effects but noted that the economy faced headwinds due to global shocks, leading to a lower-than-expected GDP growth rate of 4.3 percent in the second quarter of 2023.
“Following a slowdown in the second quarter of 2023, economic growth is projected to bounce back to 5.3 percent in 2023 and to 6.0 percent in 2024,” Peiris said.
The IMF anticipates that the global economic slowdown and tightened policy measures will continue to exert pressure on GDP growth. However, there is optimism for a recovery in the coming year, driven by the government’s commitment to accelerating public spending.
The primary risks to the GDP outlook, according to IMF officials, are elevated global and local inflation, the potential for monetary policy tightening, a global economic slowdown impacting exports, geopolitical tensions, and capital outflows under volatile market conditions.
Conversely, the condition of the US economy and a rebound in domestic demand present potential upside factors.
Peiris emphasized the need for continued monetary tightening and vigilance against inflation, with a focus on returning headline inflation to the central bank’s target range by the first quarter of 2024.
The IMF’s consultations also highlighted that while decisive monetary tightening has helped mitigate inflationary pressures, a hawkish stance is still necessary. This aligns with the forward guidance provided by the Bangko Sentral ng Pilipinas to the markets.
As for the Philippine banking sector, IMF officials acknowledged its overall strength in terms of capitalization and liquidity.
However, they also noted vulnerabilities in the corporate sector, emphasizing the importance of systemic risk monitoring, financial supervision, and macroprudential measures.
Strengthening the current bank resolution framework was also recommended, given the evolving global focus on this aspect of financial stability.