IMF upgrades Philippines growth forecasts

MANILA, Philippines — The International Monetary Fund (IMF) turned more bullish on its growth outlook for the Philippines in the next two years amid expectations of stronger consumer demand and investments.

Based on its April 2024 World Economic Outlook (WEO), the IMF slightly revised its gross domestic product (GDP) growth forecast for the Philippines to 6.2 percent this year.

“Real GDP growth for 2024 was revised slightly to 6.2 percent from the January WEO forecast of six percent, reflecting carryover from a better-than-expected outturn in the last quarter of 2023,” IMF resident representative Ragnar Gudmundsson said in an email to The STAR.

The latest IMF forecast would hit the government’s six to seven percent goal for this year, penned by economic managers through the Development Budget Coordination Committee. It would also be significantly higher than the 5.5 percent expansion in 2023.

The Philippines is expected to be the fastest growing economy in the region, exceeding Indonesia’s five percent, Malaysia’s 4.4 percent, Thailand’s 2.7 percent and Singapore’s 2.1 percent.

This year’s growth target is also higher than the 4.5 percent growth forecast for the entire Association of Southeast Asian Nations (ASEAN), a downgrade from the previous projection of 4.7 percent.

For 2025, the IMF sees the Philippine economy expanding by 6.2 percent, up from 6.1 percent previously. The Philippines would still be the fastest in the region that year.

“Over the medium term, structural reforms to close infrastructure and education gaps, attract greater FDI (foreign direct investment), and harness benefits from the digital economy should help realize a growth potential of about 6-6.5 percent,” Gudmundsson said.

“These reforms should be complemented by strengthening existing social protection schemes and addressing climate change through a more integrated strategy that includes a carbon pricing scheme,” he added.

The IMF also sees the global economy growing by 3.2 percent both in 2024 and 2025. The 2024 growth target was upgraded from 3.1 percent previously, but the 2025 GDP forecast was retained.

“Nevertheless, the projection for global growth in 2024 and 2025 is below the historical (2000–19) annual average of 3.8 percent, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth,” the IMF said.

Inflation in the Philippines is expected to average 3.6 percent this year before easing further to three percent in 2025. Both projections are lower than the six percent full-year inflation in 2023.

Gudmundsson said monthly headline inflation would gradually approach three percent in the second half of 2024, hitting the midpoint of the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

However, risks continue to cloud the outlook as a spike in food or fuel prices could lead to increased inflationary pressure for higher wage hikes and persistence in core inflation, he said.

“The BSP should maintain a sufficiently restrictive monetary policy stance until inflation fully returns to target. Scope for a gradual reduction in the policy rate could emerge later this year, provided that inflation expectations are firmly anchored and upside risks to the inflation outlook do not materialize,” he said.

Inflation accelerated to 3.7 percent in March from 3.4 percent in February, marking its second straight month of uptick. This prompted the BSP to keep borrowing costs elevated after it raised interest rates by 450 basis points from May 2022 to October 2023.

The BSP has emerged as the most aggressive central bank in the region after hiking interest rates by 350 basis points in 2022 and by another 100 basis points in 2023 to tame inflation.