The IMF cuts Philippine growth prospects

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE INTERNATIONAL MONETARY FUND (IMF) has lowered the Philippines’ growth forecast for this year after slower-than-expected growth Fexpansion in the first quarter.

The IMF now expects Philippine gross domestic product (GDP) to grow 6% this year, lower than the 6.2% projected in April’s World Economic Outlook (WEO).

The revised forecast is still within the government’s target of 6-7% this year.

“Growth is expected to recover to 6% in 2024 and 6.2% in 2025, thanks to stronger consumer demand, higher public and private investments and a recovery in exports,” IMF mission chief Elif Arbatli Saxegaard said at a press conference on Monday. .

She said the growth forecast was downgraded after weaker-than-expected GDP data.

“2023 (GDP growth) was revised slightly downwards from 5.6% to 5.5%… We received new data for the first quarter, which was slightly lower than we expected. So it reflects a small downward adjustment, which reflects results since the April WEO,” she said.

The economy grew by 5.7% in the United States Ffirst quarter, compared to 6.4% a year ago and 5.5% in the fourth quarter.

Despite the lower forecasts, Ms. Saxegaard said the Philippine economy “continues to perform well despite external challenges and policy tightening.”

She said growth would be driven by the government’s initiatives to improve ease of doing business and attract foreign direct investment, which could “enhance the economy’s long-term growth potential.”

However, she said downside risks to the outlook include geoeconomic fragmentation, high interest rates and climate-related shocks.

The IMF maintained its GDP growth forecast of 6.2% for 2025, which will be mainly driven by easing economic growth.Fand a revival in household consumption and investment.

LOWER INFLATION
Meanwhile, the IMF said it sees Philippine coming inFInflation this year will be 3.4%, lower than the previous forecast of 3.6%.

This is also lower than the Bangko Sentral ng Pilipinas (BSP) for the yearFexpectation of 3.5%.

“This reflects our view that food price inflation will decline more rapidly in the second half due to the recently announced lower import tariffs on rice,” Saxegaard said.

Last week, the board of the National Economic and Development Authority approved a reduction in rice import tariffs from 35% to 15%. This is part of a medium-term plan to reduce tariffs on agricultural and industrial products until 2028.

The rateFAccording to the Department of Agriculture, a reduction could reduce the selling price of rice by P6 to P7 per kilo as early as July.

“Although higher food prices have recently led to an increase,FInflation is expected to decline towards the 3% target in the second half of the year,” said Ms Saxegaard.

However, the IMF said there are risks to the inFThe outlook for the economy remains positive due to geopolitical tensions and commodity price volatility.

‘Sufficiently restrictive’
Ms Saxegaard said the BSP must maintain a “sufficiently restrictive” policy stance to curb inflation.

Once inflation stabilizes firmly within the 2-4% target, this would be the right time for the central bank to start easing, she added.

“That opens up room for the BSP to ease or gradually lower its policy rate somewhat (and) would still maintain its policy stance restrictively enough to anchor itself inFexpectations,” she said.

“We expect that even if the BSP were to cut its policy rate over the medium term, real interest rates would remain sufficiently tight to impact inflation,” she added.

Ms Saxegaard said the IMF expects the central bank to ease monetary policy in “the short and medium term”.

The BSP may begin its easing cycle in August, Gov. Eli M. Remolona Jr. said earlier.

The Monetary Board has kept its benchmark interest rate stable at a 17-year high of 6.5% for a period of 17 years Ffirst consecutive meeting in May.

From May 2022 to October 2023, the central bank increased borrowing costs by 450 basis points.

The IMF is preparing for its Article IV consultation, which will take place at the end of September.

According to the IMF’s Articles of Agreement, the Fund holds annual bilateral talks with its members. IMF representatives will visit the country to assess economic and financial developments and hold meetings with government and central bank officials.