IMF hikes Philippine growth outlook

WASHINGTON — The International Monetary Fund (IMF) expects the Philippines to post the fastest growth in emerging and developing Asia this year, despite a global economic slowdown.

In its latest World Economic Outlook (WEO) released here on Tuesday morning, the IMF raised its 2023 gross domestic product (GDP) growth projection for the Philippines to 6%, from the 5% forecast given in January.

This would be slower than the 7.6% GDP expansion in 2022 but matched the lower end of the government’s 6-7% target for this year.

Based on IMF projections, the Philippines’ 6% GDP growth outlook is the fastest among emerging and developing Asia economies. It is faster than India (5.9%), China (5.2%), Vietnam (5.8%), Indonesia (5%), Malaysia (4.5%) and Thailand (3.4%).

However, the multilateral lender also lowered its 2024 growth projection for the Philippines to 5.8%, from 6% previously.  The government targets 6.5-8% GDP growth for 2024.

In the WEO report, the IMF said high uncertainty continues to cloud the global economic outlook this year, citing downside risks from central banks’ tight monetary stance, high debt levels, limited fiscal buffers, commodity price spikes and geopolitical tensions.

“But these forces are now overlaid by and interacting with new financial stability concerns. A hard landing — particularly for advanced economies — has become a much larger risk. Policymakers may face difficult trade-offs to bring sticky inflation down and maintain growth while also preserving financial stability,” the IMF 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%). If realized, this will be slower than the 3.4% global expansion in 2022.

In a “plausible alternative scenario” with further financial sector stress, the IMF said global growth may decline to around 2.5% in 2023.

The IMF sees emerging and developing Asia expanding by 5.3% this year and 5.1% in 2024.

Pierre-Olivier Gourinchas, economic counsellor and the director of research of the IMF, said in a statement that inflation is stickier than expected, even from a few months ago.   

“While global inflation has declined, that reflects mostly the sharp reversal in energy and food prices. But core inflation, which excludes energy and food, has not yet peaked in many countries,” Mr. Gourinchas said.   

In the Philippines, inflation eased to 7.6% in March from 8.6% in February. However, core inflation quickened to a new 22-year high of 8% from 7.8% a month prior.

Since May 2022, the Monetary Board raised key interest rates by 425 bps, bringing the benchmark policy rate to a near 16-year high of 6.25%.     

The IMF expects Philippine headline inflation this year to reach 6.3%, higher from the previous 4.5% estimate. It sees Philippine inflation slowing to 3.2% by 2024.

These forecasts are higher than the BSP’s average full-year projection of 6% this year and 2.9% for 2024.

“More worrisome are the side effects that the sharp monetary policy tightening of the last year is starting to have on the financial sector, as we have repeatedly warned might happen. Perhaps the surprise is that it took so long,” Mr. Gourinchas said.   

The IMF said the recent instability in the global banking sector showed the economic recovery is still fragile, and that vulnerabilities exist both among banks and nonbank financial intermediaries.

The failures of Silicon Valley Bank and Signature Bank of New York and the loss of confidence in Credit Suisse rattled the global financial system.

“We are therefore entering a tricky phase during which economic growth remains lackluster by historical standards, financial risks have risen, yet inflation has not yet decisively turned the corner,” Mr. Gourinchas said.   

The effects of the recent banking turmoil have been so far limited for emerging markets and developing economies, the IMF said.

“For emerging markets and developing economies, economic prospects are on average stronger than for advanced economies, but these prospects vary more widely across regions,” it said.   

Based on the IMF’s Global Financial Stability Report, emerging markets have smoothly managed the aggressive tightening of monetary policy compared to advanced economies. 

“In addition to having generally stronger fundamentals and higher buffers than in the past, they have benefited from policy space created by commencing their own tightening cycles ahead of advanced economies,” the IMF said. — By Keisha B. Ta-asan, Reporter