The International Monetary Fund on Tuesday cut its 2023 growth forecast for the Philippines to 5.3 percent from the 6.2-percent estimate it made in July as elevated inflation continued to impact consumer spending.
IMF’s latest forecast was below the 6 percent to 7 percent target range of the interagency Development Budget Coordinating Committee. It was also lower than the World Bank’s 5.6 percent projection, which was also a downward adjustment from the bank’s previous estimate of 6 percent.
IMF said that in 2024, it expects the Philippine economy to grow 6 percent, an upward revision from its original forecast of 5.5 percent.
Inflation peaked at 8.7 percent in January 2023 but eased in the succeeding months before picking up to 5.3 percent in August. This brought the average in the first eight months to 6.6 percent, above the target range.
IMF said in a statement that “a higher-for-longer policy rate path is warranted until inflation firmly falls within the target range.”
Michael Ricafort, the chief economist of Rizal Commercial Banking Corp., told Manila Standard a GDP growth of 5.5 percent to 6 percent for 2023 is “still realistic.”
“[It is] also still among the fastest growing economies in ASEAN,” Ricafort said. He said the elevated consumer prices would still reduce spending by consumers and businesses, industries, the government and other institutions.
“Higher borrowing costs/financing costs will slow investments and other business/economic activities as these increase debt servicing costs in the economy and slow demand,” Ricafort said.
The Bangko Sentral ng Pilipinas raised the policy rate by a total of 425 basis points to 6.25 percent between May 2022 and March 2023, before taking what it called a “prudent pause” during in last four Monetary Board meetings.
World Bank East Asia and Pacific chief economist Aaditya Mattoo said on Monday the big concern for most of the economies in the region was the slowing global growth.
Mattoo said the good news for the Philippines was that the economic activity would be supported by domestic demand, led by private consumption and decelerating inflation.
Finance Secretary Benjamin Diokno earlier said the Philippine economy would continue to be one of the most resilient in the region amid the global downgrades expected from multilateral agencies like the World Bank and the Asian Development Bank.
Diokno said the slowdown in China could affect many countries, especially if they depended more on the world’s second-largest economy. He said the Philippines’ growth for the past several years was mostly domestic demand-driven.
Diokno said the DBCC would review the first-half performance of the domestic economy later this month. The GDP grew 4.3 percent in the second quarter and 5.3 percent in the first half.