IMF bullish on Philippine economy

WASHINGTON — The Philippines will likely sustain its growth momentum this year, supported by robust consumer demand and China’s reopening, the International Monetary Fund (IMF) said.   

IMF Director of the Asia and Pacific Department Krishna Srinivasan said the country will likely benefit from China’s reopening this year.   

“The Philippines is one country that would benefit from an opening up of China, so there are upside risks to growth going forward,” Mr. Srinivasan said during the Asia-Pacific regional economic outlook press briefing here last week.

China’s reopening should lead to higher net exports and more tourism activities in the Philippines, IMF Deputy Director of the Asia and Pacific Department Sanjaya Panth said in an interview with BusinessWorld.

In its latest World Economic Outlook report, the IMF raised its 2023 gross domestic product (GDP) growth projection for the Philippines to 6%, from the 5% forecast given in January. This matched the lower end of the government’s 6-7% target for this year.   

Mr. Panth said the growth forecast for the Philippines was upgraded due to a better-than-expected fourth-quarter performance last year as well as strong consumer demand.

“It’s a combination of all three. The very strong path that [the Philippines has] been coming from already towards the end of last year, the continued strong consumer demand, and the more positive outlook following China’s reopening,” he said. 

The Philippine economy expanded by an annual 7.2% in the fourth quarter, bringing the 2022 full-year expansion to 7.6%, the quickest since 1976. 

Domestic consumption helped drive growth, rising 8.3% in 2022 as Filipinos spent more on restaurants and travel.

However, elevated inflation is still a concern as it has remained above the 2-4% target range of the Bangko Sentral ng Pilipinas (BSP) for a year, Mr. Panth said.   

“Headline inflation eased a little bit in March on a year-to-year basis. But it’s also important to keep in mind that it has been above the upper end of the Bangko Sentral’s target range for 12 months now,” he said.   

Inflation slowed to 7.6% in March from 8.6% in February, bringing the first-quarter average to 8.3%. This is still way above the central bank’s full-year forecast of 6% and the 2-4% target range.

Mr. Panth noted that inflation in the Philippines has become more broad-based due to rising prices in the services sector.

“We do expect headline inflation to rise to about 6.3% on average in 2023, from 5.8% in 2022, and that’s because of the inflation that’s already built up in the system, including the fact that it’s become more broad-based,” he said.   

Mr. Panth said the Philippine central bank has done a “very commendable job in terms of acting early and acting decisively.”

To tame inflation, the Monetary Board has raised policy rates by 425 basis points (bps) since May last year, bringing the benchmark rate to 6.25% — the highest since 2007.    

“We think that this (rate hike) should help anchor inflation expectations going forward,” Mr. Panth said.   

Due to the BSP’s policy actions, the IMF expects inflation to start easing back to the 2-4% target range either by end of this year or by early next year.   

By 2024, the IMF sees Philippine inflation averaging 3.2%, slightly higher than the central bank’s full-year projection of 2.9%.

Asked if he thinks more tightening from the BSP is on the table, Mr. Panth said the Monetary Board’s decision at its next meeting on May 18 would have to be very data dependent.

“If necessary, [the BSP may] continue to raise rates until [they] actually have inflation well under control. But, because there were actions that were taken pretty early, [the BSP] need to allow that to work its way through the economy,” he said.   

Last week, BSP Governor Felipe M. Medalla hinted that the Monetary Board may keep interest rates on hold at its next meeting if inflation further slows in April. 

Mr. Medalla also said the BSP may cut borrowing costs this year if inflation continues to ease in the next six months.

Sustaining growth
Prudent management of the economy, both on the fiscal side and monetary policy side, is crucial to further sustain the Philippines’ growth momentum, Mr. Panth said.   

Even though the Philippines was not exposed from the recent banking turmoil in the US and Europe, he said the incidents warrant continued vigilance to ensure financial stability.   

“As soon as risks arise, (regulators should) start looking at where they may arise, be a little proactive in trying to identify risks, and then make sure that you have the necessary regulatory instruments to be able to intervene, if necessary,” Mr. Panth said.

For 2024, the IMF lowered its growth projection for the Philippines to 5.8%, from 6% previously. This is below the government’s 6.5-8% GDP growth target for 2024. 

“Because the global economy is not at a very comfortable place, we would not be surprised if growth came down slightly,” Mr. Panth said.

The IMF trimmed its global growth forecast for 2023 to 2.8% (from the 2.9% given in January) and for 2024 to 3% (from 3.1%).

Still, the IMF sees the Philippines’ long-term potential GDP growth between 6% and 6.5%. This may allow the country to achieve a higher upper middle-income class soon, Mr. Panth added.

The Philippines is currently aiming to become an upper middle-income economy by 2024 or 2025. — By Keisha B. Ta-asan, Reporter