IMF sees faster PHL growth until 2026

The Philippine economy will continue to accelerate from this year to 2026 as domestic demand remains robust, the International Monetary Fund (IMF) said, but warned risks are tilted to the downside due to possible external shocks.

At the same time, Finance Secretary Ralph G. Recto said that the Philippines likely failed to hit its 6-6.5% growth goal for 2024, amid typhoons.

“If it hits 6% in the fourth quarter, I’ll be happy with that. I don’t think it will hit 6% for 2024, but I think it will surpass 6% in 2025,” Mr. Recto told reporters on Jan. 16.

For the first nine months of 2024, Philippine growth averaged 5.8%, the same as the IMF’s projection for the full year. Preliminary fourth-quarter and full-year gross domestic product (GDP) data will be released on Jan. 30.

In its latest World Economic Outlook  update, the IMF kept its GDP forecasts for the Philippines at 6.1% this year and 6.3% for 2026, the same as its projections in October.

These would fall within the government’s 6-8% GDP target for 2025 and 2026.

“Growth for 2025-2026 is projected to be primarily driven by domestic demand, namely consumption and investment,” an IMF spokesperson said in an e-mail.

“Consumption growth will be supported by lower food prices and gradual monetary policy easing,” it added.

Latest data from the Philippine Statistics Authority showed household consumption, which accounts for over three-fourths of the economy, jumped by 5.1% in the third quarter from 4.7% a quarter ago.

“Investment growth is expected to pick up on the back of a sustained public investment push, gradually declining borrowing costs and acceleration in the implementation of public-private partnership projects and foreign direct investments (FDI), following recent legislative reforms,” the IMF said.

Gross capital formation, the investment component of the economy, expanded by 13.1% in the third quarter, a turnaround from the 0.3% dip a year ago.

However, the IMF said that the balance of risks to the growth outlook is tilted to the downside, citing external risks.

“Some of the main downside risks include recurrent commodity price volatility, and new supply shocks, which may necessitate tighter monetary policy to anchor inflation expectations,” it said.

The IMF also cited shocks such as geopolitical tensions which could disrupt trade and other financial flows.

“Higher for longer policy rates in advanced economies (could cause) capital outflows, and tighter financial conditions,” it added.

The multilateral institution also cited climate shocks and extreme weather events which would lead to economic losses.

“There are also upside risks to the outlook, including from higher-than-expected growth in private investment through public-private partnerships, higher inward FDI following a faster-than-expected global recovery, or stronger reform momentum,” it added.

Inflation

Meanwhile, the IMF said it expects inflation to remain within the central bank’s 2-4% target range in the near to medium term.

It projects headline inflation to average 2.8% this year and 3% in 2026.

“However, risks are tilted to the upside, as rising geopolitical tensions, extreme climate events, and recurrent commodity price volatility continue to pose upside risks to inflation,” it said.

Headline inflation averaged 3.2% in 2024, well within the central bank target.

This year, the Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.3%.

The IMF said the central bank can gradually lower borrowing costs and “move toward a neutral stance.”

“With inflation and inflation expectations returning to the target and the opening of a negative output gap, continued reduction of the policy rate will be appropriate,” it said.

The BSP slashed interest rates by 75 basis points (bps) last year, delivering three straight rate cuts since it began its easing cycle in August.

The central bank has signaled further easing this year as the current policy rate at 5.75% is still in “restrictive territory,” BSP Governor Eli M. Remolona, Jr. earlier said.

“Along the declining rate path, the BSP must ensure that its stance continues to anchor inflation and inflation expectations firmly within the target band.”

“Amidst prevailing uncertainty, a data-dependent approach, and clear and effective communication around policy settings will be important to manage expectations and provide clarity on the BSP’s reaction function,” it added. – Luisa Maria Jacinta C. Jocson, Reporter