IMF trims Philippine growth forecasts

The International Monetary Fund (IMF) trimmed its economic growth forecasts for the Philippines as elevated inflation is likely to continue weighing on domestic demand.

The multilateral institution cut the country’s gross domestic product (GDP) outlook for this year to 5.8% from 6% previously. It also now sees GDP expanding by 6.1% in 2025, a tad lower than the previous forecast of 6.2%.

The IMF’s growth estimates fall short of the government’s 6-7% and 6.5-7.5% GDP forecasts for this year and 2025, respectively.

“The downward revision from our July forecast mainly reflects our view that private consumption is going to grow slightly with less momentum,” IMF Mission Chief Elif Arbatli Saxegaard said at a press briefing on Wednesday.

“I would like to highlight that the downgrade is very small and reflects the fact that the first-half private consumption growth was lower than what we had anticipated, and this might be in part driven by the high food prices.”

The Philippine economy grew by 6.3% in the second quarter, the fastest growth in five quarters. However, household spending continued to be “anemic” as it rose by just 4.6% in the second quarter from 5.5% a year ago.

“With the ongoing efforts, including non-monetary efforts to reduce food prices and especially rice prices, we do think that this will be supportive of consumption growth going forward,” Ms. Saxegaard said.

She said that risks to the growth outlook are tilted to the downside, with risks stemming from an anticipated slowdown in major economies, commodity price volatility, supply shocks, and geopolitical tensions.

“On the upside, an easing of global financial conditions or faster-than-anticipated private investment, for example, linked to the public-private partnerships or larger foreign direct investment (FDI) inflows could stimulate higher growth,” she said.

Ms. Saxegaard also noted its growth projections for the Philippines remain one of the highest in the region.

“It’s 6.1% growth for 2025 is a very respectable growth rate… so it’s a very small adjustment reflecting the outturn in the first half.”

She also noted that the Philippine economy “holds significant potential” in its natural resources, blue economy and demographic dividend.

“In our view, what will be very critical for the medium term is the potential to unlock this medium-term growth potential through comprehensive and well-sequenced structural reforms.”

Meanwhile, the IMF sees headline inflation averaging 3.3% in 2024 and 3% in 2025.

These are slightly lower than the Bangko Sentral ng Pilipinas’ (BSP) full-year forecasts of 3.4% and 3.1% for this year and in 2025, respectively.

“That would be supported by lower food and core inflation remaining well within the target,” Ms. Saxegaard said.

Ms. Saxegaard said that risks to the inflation outlook remain tilted to the upside due to recurring commodity price shocks and any potential supply shocks.

“We believe that the decisive monetary tightening and other measures have helped mitigate inflationary pressures in the Philippines, recent tariff cuts on imported rice and other non-monetary measures helped reduce food prices and should further reduce headline inflation by the year-end,” she said.

‘GRADUAL REDUCTION’

The IMF said that the Philippine central bank can begin gradually reducing interest rates.

“With inflation already coming down to within the target band, also with inflation expectations coming down, and the opening of a small negative output gap, we do think that a gradual continued reduction in the policy rate is appropriate. That’s our current advice,” she said.

At its Aug. 15 meeting, the BSP began cutting interest rates for the first time in nearly four years. It reduced the benchmark interest rate by 25 basis points to 6.25% from the over 17-year high of 6.5%.

“The data-dependent approach and careful communication around policy settings will help manage expectations and uncertainty and more frequent supply-side shocks,” Ms. Saxegaard said.

IMF Representative to the Philippines Ragnar Gudmundsson said that the BSP should also take into account that there are still both upside and downside risks to inflation.

“This is why the data-dependent approach is very important. So, yes, there is loosening, but caution is still necessary in the coming months because of an uncertain environment,” he added. – Luisa Maria Jacinta C. Jocson, Reporter