Multilateral lenders maintain optimism for Philippines

MANILA, Philippines — Economic growth in the Philippines is poised for a rebound in 2024 and beyond, with multilateral lenders projecting robust expansion driven by easing inflation, steady domestic demand and supportive policy measures.

However, risks stemming from global and domestic challenges continue to cloud the outlook.

In its staff report for the 2024 Article IV Consultation, the International Monetary Fund (IMF) forecasts the Philippine economy to grow by 5.8 percent in 2024 and 6.1 percent in 2025, buoyed by monetary policy easing and a narrowing negative output gap.

“Consumption growth will be buoyed by lower food prices and the upcoming midterm elections, while investment growth is expected to pick up on the back of a sustained public investment push, and gradually declining borrowing costs,” the IMF said.

The Philippine economy expanded by 5.2 percent in the third quarter, slower than the previous quarter’s 6.4 percent growth and the six percent expansion in the third quarter of last year. For the first three quarters, the country’s gross domestic product (GDP) averaged 5.8 percent.

Household consumption was the largest contributor to GDP growth, rising by 5.1 percent in the third quarter.

Strong inflows

According to the IMF, investment is projected to gain momentum through public-private partnership projects and foreign direct investments (FDIs), spurred by recent legislative reforms.

The external position is also set to improve, with a narrowing current account deficit and an anticipated uptick in tourism and remittances.

The IMF projects the current account deficit to narrow by two percent of GDP in 2024 and 1.9 percent of GDP in 2025, supported by lower commodity prices, a gradual pick-up in tourism and business process outsourcing sector receipts.

The country’s current account deficit widened by 19.3 percent to reach $12.9 billion (-3.9 percent of GDP) in January to September from the $10.8 billion deficit (-3.5 percent of GDP) in the same period a year ago.

Remittances into the Philippines are also expected to rise slightly, while FDI inflows are seen to improve compared to 2023 amid lower policy rates in advanced economies. This will bring the overall balance of payments (BOP) position to remain in surplus.

From January to October, personal remittances rose by three percent to $31.49 billion from $30.57 billion in the same period a year ago. Of the total, cash remittances went up by three percent to $28.3 billion.

Meanwhile, net FDI inflow increased by 3.8 percent to $6.66 billion as of September from a yearago level of $6.42 billion.

The country’s BOP position posted a surplus of $5.1 billion in January to September, markedly higher than the $1.7 billion surplus recorded in the comparable year-ago period.

The IMF also sees inflation to average 3.2 percent in 2024 before slowing further to 2.8 percent in 2025.

“Upward revisions to electricity rates balanced off by the reduction in rice tariffs and other non-monetary measures to reduce food prices,” the multilateral lender said.

Despite this optimistic outlook, the IMF warns of significant downside risks. These include commodity price volatility, geopolitical tensions and potential global economic slowdowns, which could impact trade and capital flows. Natural disasters and stalled reform momentum could further hinder growth. On the upside, faster-thanexpected recovery in global markets and stronger private investment could exceed projections.

Meanwhile, the World Bank sees the Philippines growing by 5.9 percent this year, before picking up to 6.1 percent in 2025. It also expects GDP to hit six percent in 2026.

Robust consumption

Gonzalo Varela, World Bank lead economist and program leader of the equitable growth, finance and institutions practice group for the

Philippines, Malaysia and Brunei, earlier said the positive outlook for the country is anchored on private domestic demand.

He said that private consumption is expected to remain the main driver of economic activity until 2026, fueled by low and stable inflation, steady overseas Filipino workers’ remittances and a dynamic labor market.

Varela also said private investment activity is also expected to firm up due to reforms undertaken by the country to attract more investors and lower interest rates.

“Strong growth puts the country on a firmer footing to maintain gains in poverty reduction,” Zafer Mustafaoglu, World Bank country director for the Philippines, Malaysia and Brunei Darussalam earlier said.

The World Bank also expects poverty incidence in the country to decrease to 13.6 percent in 2024 from 15.5 percent last year, based on the lower-middle-income poverty line of $3.65 per day.

It expects the poverty incidence to fall further to 11.3 percent in 2026.

The Asian Development Bank (ADB) projects the Philippine economy to expand by six percent in 2024 and 6.2 percent in 2025. Both forecasts are within the government’s revised growth targets of six to 6.5 percent for this year and six to eight percent for next year.

“Household consumption and investment continue to drive the economy with both rising faster in the third quarter. Moderating inflation and monetary policy easing should continue to support growth,” the ADB said in its Asian Development Outlook December 2024 report.

The multilateral lender also said that the services sector, construction and manufacturing are seen to help drive overall growth.

The ADB also expects public infrastructure projects to continue to lift growth, along with brisk private construction.

The multilateral lender, however, flagged risks that may affect the outlook. These include the faster or larger-than-expected shifts in US trade, immigration and fiscal policy, geopolitical tensions and China’s property market fragility.