The International Monetary Fund (IMF) expects the Philippine economy to grow faster in 2024 on the back of higher government spending, recovery of exports and rising foreign investments.
Shanaka Jayanath Peiris, division chief of regional Studies at IMF’s Asia and Pacific Department, said while the gross domestic product (GDP) growth of the Philippines would taper to 5.3 percent in 2023, the economy was poised to post faster expansion next year.
“It’s true that the Philippines was growing at 6 plus, and now this year, we’re expecting a slowdown to 5.3 percent, but go back to 6 percent next year,” Peiris said during the release of the IMF’s latest Regional Economic Outlook for Asia and the Pacific in Singapore.
The IMF revised its 2024 growth forecast for the Philippines to 6 percent from 5.5 percent.
“This year’s growth is a bit weaker for many factors, including kind of underspending in the government, of course the impact of monetary tightening and the weak external global environment, which is a very similar story to many ASEAN countries,” said Peiris.
“For next year, we are expecting a pickup because service exports are doing quite well. And as I said, the tech cycle will turn, so electronic exports also get a boost next year, and the public spending will also accelerate,” he said.
Peiris also noted that strong macro-economic fundamentals are in place in the Philippines, with the Bangko Sentral ng Pilipinas acting “very decisively in raising [interest] rates when inflation went up.”
“Fiscal consolidation is on track, supporting monetary policy. So prudent macro policy in the Philippines has been one hallmark of the good economic performance,” he said.
Peiris said the opening up of the economy to foreign investment would also help lift the economy.
“FDI has picked up. Right now, globally, FDI is weak, but opening up to greater investment, the prudent macro policies, and also the fiscal focusing more on infrastructure [with] 5 percent of GDP in public investment and PPPs [public-private partnerships] is one reason I think Philippines has done well, and that hopefully all is well going forward,” he said.
Peiris said, however, that that there’s upside risk to inflation. “I think the BSP recognizes it. What we said is that the current restrictive monetary stance should help bring down inflation by Q1 next year,” he said.
The IMF asked countries to keep the course on monetary policy tightening to bring inflation down. “But if upside risks materialize, you may need to raise interest rates more. And I think that’s where roughly the central bank is at the moment,” said Peiris.
Krishna Srinivasan, director of IMF’s Asia and Pacific Department, said global growth is forecast to slow from 3.5 percent in 2022 to 3 percent in 2023 and 2.9 percent in 2024.
“The global outlook is supported by continued consumption dynamism in the US. but faces pressures from China’s worsting property crisis, tight policy stances around the world, the consequences of Russia’s war in Ukraine, the most recent conflict and growing geoeconomic fragmentation,” he said.
“Despite a challenging global environment, the Asia and Pacific region remains a relative bright spot. It is expected to grow by 4.6 percent in 2023 and by 4.2 percent in 2024, which puts it on track to contribute about two thirds of global growth this year,” Srinivasan said.
Srinivasan said while the reopening of China’s economy has given the service sector and retail sales a boost, the benefit to the manufacturing sector is proving short lived. The real estate sector in China is grappling with further pressures on debt repayments, home sales and investment, he said.
The IMF expects ASEAN economies to see growth of 4.2 percent in 2023 and 4.6 percent in 2024, a downward revision of 0.4 percentage points in 2023 and 0.3 percentage points in 2024, relative to its April World Economic Outlook.