IMF raises Philippine growth forecast 

The International Monetary Fund (IMF) raised its growth outlook for the Philippines to 6.2% this year from the 6% forecast it gave in April, as domestic demand is expected to remain robust.

At the same time, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said economic growth further slowed in the second quarter but is unlikely to miss the full-year target.

In an e-mail, IMF Representative to the Philippines Ragnar Gudmundsson said the Philippine growth forecast for this year was revised to reflect the strong first-quarter outturn. 

The Philippine economy expanded by 6.4% in the first quarter, beating expectations, but slower than the 8% growth in the same period in 2022.

“We’ve seen that demand and growth dynamics remained strong in 2023,” Mr. Gudmundsson told reporters on the sidelines of the Philippine economic briefing in Pasay City.

The IMF’s 2023 gross domestic product (GDP) growth forecast is within the government’s 6-7% target for this year. In 2022, GDP grew by 7.6%.

However, the IMF lowered its 2024 growth projection for the Philippines to 5.5%, from 5.8% previously. This is well below the government’s 6.5-8% GDP growth target for next year.

“The forecast for 2024 has been revised slightly downwards because of global headwinds and the lagged effects of monetary policy tightening,” Mr. Gudmundsson said.

To curb inflation, the Bangko Sentral ng Pilipinas (BSP) hiked borrowing costs by 425 basis points (bps) starting from May last year to March 2023, bringing the benchmark interest rate to a near 16-year high of 6.25%.

The IMF’s Philippine growth forecasts for this year and 2024 are above its estimates for the Association of Southeast Asian Nations-5 (ASEAN-5). The IMF raised its growth outlook for ASEAN-5, which refers to Indonesia, Malaysia, the Philippines, Singapore, and Thailand, to 4.6% this year from 4.5% in April. It lowered the ASEAN-5 forecast for 2024 to 4.5% from 4.6% previously.

Slower Q2 growth
Despite an expected slowdown in the second quarter, Mr. Balisacan told reporters that he is hoping the economy will hit the lower end of the 6-7% growth target this year.

“We will probably see (GDP) growth further moderate but not far enough to allow us to miss the target,” Mr. Balisacan said.

In order to achieve the 6% full-year growth, the economy would need to grow by an average of 5.9% in the remaining three quarters, he added.

Mr. Balisacan said consumption and easing inflation continued to support growth in the second quarter.

“One positive thing is inflation has been coming down, it’s still a bit high, but the fact that it has been going down should have helped shape the expectations about the near future and that would inspire confidence in spending,” he added.

Construction and services sector also drove growth during the April-to-June period, Mr. Balisacan said.

“We don’t expect to see (growth) in net exports, it’s risky because of the (current) global environment. And that is why our thrust is to diversify sources of growth to include also the external side,” he said.

Second-quarter GDP data will  be released on Aug. 10.

Global outlook
In its World Economic Outlook (WEO) July update, the IMF raised its 2023 global growth forecast to 3% from the 2.8% given in April, but slower than the 3.5% expansion last year.

For 2024, the IMF maintained its 3% global growth projection.

Both forecasts are well below the historical (2000-2019) annual average of 3.8%.

“The rise in central bank policy rates to fight inflation continues to weigh on economic activity,” the IMF said.

The IMF said growth in emerging and developing Asia is on track to rise to 5.3% in 2023, before slowing to 5% in 2024.

Risks to the global growth outlook include persistent inflation, a slower-than-expected recovery in China’s economy, an increase in debt distress, and intensified geopolitical tensions, the IMF said.

While inflation is easing in many countries, the multilateral lender said it still remains elevated. It sees global headline inflation to hit 6.8% this year, before easing to 5.2% in 2024. 

For the Philippines, the IMF expects full-year inflation to average 5.5% in 2023, lower than the 6.3% forecast given in April. Inflation is seen to slow further to 3.2% by 2024.

Both inflation estimates are above the BSP’s 5.4% forecast for 2023 and 2.9% next year, respectively.

“While we have recently seen some easing of fuel and food prices, it will be important to pay close attention to possible upside risks to inflation due to El Niño, wage spirals related to tight labor markets, and commodity price volatility,” Mr. Gudmundsson said.

The state weather agency announced the onset of the El Niño earlier this month and expects the weather pattern to persist until the first quarter of next year.

A P40 minimum wage hike in the National Capital Region took effect on July 16, while other regional wage boards are scheduled to decide on pending petitions in September.

The IMF said core inflation is generally declining more gradually around the world, proving to be more persistent than initially projected.

During a panel discussion at Tuesday’s Philippine economic briefing, Mr. Gudmundsson said that core inflation remains elevated in the country.

Core inflation, which discounted volatile prices of food and fuel, slowed to 7.4% in June from 7.7% in May. Core inflation averaged 7.7% so far this year. 

“We believe that the higher for longer stance [of the BSP] in the near term is still appropriate to anchor inflation expectations and ensure inflation returns to the BSP’s target range of 2-4%,” Mr. Gudmundsson said.

Meanwhile, the BSP should continue to monitor the development of monetary policy in advanced economies abroad such as the US and Europe.

“This tighter for longer stance is important not only from a domestic perspective, but also to guard against potential capital outflows. It was more of a concern last year compared to this year, but it is still relevant,” Mr. Gudmundsson said. — Keisha B. Ta-asan with Luisa Maria Jacinta C. Jocson