Philippine growth to bottom out this year – IMF

MANILA, Philippines —  Supported by an acceleration in public investment and better export performance, Philippine economic growth may bottom out this year and start bouncing back in the second half of 2024, according to the International Monetary Fund (IMF).

Based on a report prepared by an IMF team after the latest Article IV consultation, the gross domestic product (GDP) growth of the Philippines may hit bottom at 5.3 percent this year before bouncing back to six percent next year.

“Growth is expected to bottom out in 2023. Real GDP growth is expected to bounce back in the second half of 2023 and reach six percent in 2024, supported by an acceleration in public investment and improved external demand for the Philippines’ exports,” the IMF said.

It pointed out that the government’s infrastructure program, opening up of sectors to greater foreign investment, and private sector participation through public-private partnership (PPP) modalities would gradually encourage more private investments and help realize a growth potential of about six to 6.5 percent over the medium-term.

Both projections are lower than the six to seven percent for 2023 and 6.5 to 7.5 percent for 2024 targets recently penned by economic managers through the Development Budget Coordination Committee (DBCC).

The economy grew by 7.6 percent in 2022. From January to September, the economy expanded by 5.5 percent after a stronger-than-expected 5.9 percent growth in the third quarter.

However, the economy needs to grow by at least 7.2 percent in the fourth quarter to meet the lower end of the six to seven percent target range for this year.

“Executive directors noted that, after recovering strongly from the pandemic, the Philippine economy has withstood a confluence of shocks. Against this backdrop, directors commended the authorities for their appropriate policy response and the recent implementation of key structural reforms to stimulate exports, spur foreign investment and raise growth potential,” the IMF said.

According to the multilateral lender, the Philippines should maintain prudent policies to further rein in inflation, preserve fiscal sustainability and increase financial resilience.

“Sustaining efforts to address structural challenges is also important,“ it said.

The IMF said that monetary policy has been tightened appropriately to anchor inflation expectations.

It sees inflation easing to 3.7 percent in 2024 and to three percent in 2025 after accelerating to six percent this year from 5.8 percent last year.

“Inflation is projected to gradually approach the target in early 2024, though recurrent supply shocks cloud the disinflation trajectory,” it said.

The IMF emphasized the need to maintain a restrictive policy stance until inflation fully returns to target, and to remain ready to tighten further should upside risks to inflation materialize.

The Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 450 basis points since May last year to tame inflation and stabilize the peso, bringing the benchmark interest rate to a 16-year high of 6.50 percent from an all-time low of two percent during the height of the global health crisis.

“Monetary policy should maintain a higher-for-longer policy rate path until inflation fully returns to target. The BSP should stand ready to raise interest rates further should upside risks materialize,” the IMF said.