IMF hikes growth forecast for PHL

By Luisa Maria Jacinta C. Jocson, Reporter

THE INTERNATIONAL Monetary Fund (IMF) raised its gross domestic product (GDP) growth forecast for the Philippines for this year and 2025. 

In its latest World Economic Outlook (WEO), the IMF upwardly revised its Philippine growth forecast to 6.2% for this year from 6% previously. This is within the government’s revised 6-7% growth target.

“Real GDP growth for 2024 was revised slightly to 6.2% from the January WEO forecast of 6%, reflecting carryover from a better-than-expected outturn in the last quarter of 2023,” IMF Representative to the Philippines Ragnar Gudmundsson said in an e-mail.

The Philippine economy grew by 5.5% in both the fourth quarter and full-year 2023.

Based on IMF projections for emerging and developing Asia, the Philippines is expected to post the second-fastest GDP growth this year, just behind India (6.8%). It is ahead of Vietnam (5.8%), Indonesia (5%), China (4.6%), Malaysia (4.4%) and Thailand (2.7%).

“Growth in emerging and developing Asia is expected to fall from an estimated 5.6% in 2023 to 5.2% in 2024 and 4.9% in 2025, a slight upward revision compared with the January 2024 WEO Update,” according to the report.

The multilateral lender sees five Association of Southeast Asian Nations member economies (ASEAN-5) to expand by an average of 4.5% this year, slightly lower than the 4.7% forecast it gave previously. 

The ASEAN-5, composed of the Philippines, Singapore, Malaysia, Vietnam, and Indonesia, is forecast to grow by 4.6% next year, slightly higher than its 4.4% projection in January.

For 2025, the IMF sees Philippine GDP growing by 6.2%, a tad higher than its previous forecast of 6.1% but below the government’s 6.5-7.5% target.

Mr. Gudmundsson said the forecast for 2025 is supported by expectations of an “acceleration in domestic demand and investment.”

Next year, the Philippines has the second-fastest projected growth in the region, just behind India and Vietnam (both at 6.5%).

“Over the medium term, structural reforms to close infrastructure and education gaps, attract greater foreign direct investments (FDIs), and harness benefits from the digital economy should help realize a (Philippine) growth potential of about 6-6.5%,” Mr. 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.

Economic managers are targeting 6.5-8% growth from 2026 to 2028.

Meanwhile, the IMF sees global growth settling at 3.2% for both 2024 and 2025. It raised its 2024 forecast by 0.1 percentage point but kept its 2025 projection unchanged from January.

“Nevertheless, the projection for global growth in 2024 and 2025 is below the historical (2000-2019) annual average of 3.8%, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth,” the IMF said.

It said that emerging market and developing economies are expected to “experience stable growth through 2024 and 2025, with regional differences.”

INFLATION
Meanwhile, the IMF sees inflation averaging 3.6% this year, lower than the 3.7% forecast in its January update.

“Inflation is projected to gradually approach the target of 3% in the second half of 2024, though risks remain tilted to the upside as a surge in food or fuel prices could lead to increased pressure for greater wage hikes and persistence in core inflation,” Mr. Gudmundsson said.

Inflation accelerated for a second straight month to 3.7% in March, mainly due to high food and transport costs. The BSP sees inflation averaging 3.8% this year.

BSP Governor Eli M. Remolona, Jr. has said that upside risks to inflation have worsened, prompting the central bank to be “somewhat more hawkish than before.”

Inflation could temporarily accelerate to above the 2-4% target over the next two quarters, according to the BSP.

The IMF also sees inflation averaging 3% in 2025, same as its previous estimate.

The BSP expects inflation to average 3.2% next year.

Mr. Gudmundsson said that 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 added.

At its latest meeting in April, the Philippine central bank left its benchmark rate unchanged at a near 17-year high 6.5% for a fourth straight meeting.

From May 2022 to October 2023, the Monetary Board raised borrowing costs by 450 basis points (bps).

Mr. Remolona told Bloomberg on Monday that if inflation continues to worsen, there is a chance that there will be no rate cuts this year.

The central bank will likely begin policy easing by the first quarter of 2025, he added.