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IMF sees PHL growth further slowing in 2024

People walk past a display at a flower shop in Dangwa, Manila, May 12, 2023. — PHILIPPINE STAR/EDD GUMBAN

THE PHILIPPINE ECONOMY may expand at a much slower pace next year due to weak external demand and high base effects, the International Monetary Fund (IMF) said on Friday.

At a press briefing following a staff visit from the multilateral lender, IMF Mission Head to the Philippines Shanaka Jay Peiris said Philippine gross domestic product (GDP) growth may fall within the 5.5-6% range in 2024.

The lower end of the forecast is also below the 5.8% projection the IMF previously gave in April.

The IMF’s forecast is also below the government’s 6.5-8% target for next year.

“Last year’s growth in the fourth quarter is strong, and first quarter is also strong, so the base effects next year are going to be a bit more challenging because we see a very strong growth in the entire [2023],” Mr. Peiris said.

Despite China’s reopening, he said the IMF sees weaker external demand through 2024 due to the looming recession in the United States and Europe.

At the same briefing, IMF Resident Representative to the Philippines Ragnar Gudmundsson said the 2024 outlook for the Philippines may improve “if we see an acceleration in investments.”

For this year, the IMF kept its 6% growth forecast for the Philippines. Mr. Peiris said that the first-quarter GDP growth in the Philippines was in line with their expectations. 

The Philippine economy grew by 6.4% in the first quarter, marking the slowest pace in two years. This is lower than the revised 7.1% growth in the previous quarter. Still, it settled within the government’s 6-7% target for the year.

Philippine headline inflation also started slowing, and while core inflation is still elevated, Mr. Peiris said the latter is expected to ease in the coming months.

Inflation slowed for a third straight month in April, easing to 6.6% from 7.6% in March. For the first four months of the year, inflation averaged 7.9%, still above the BSP’s 6% full-year forecast.

Meanwhile, core inflation slightly slowed to 7.9% in April from 8% in March.

“The current monetary stance might need to stay tighter for longer, maybe mostly for this year, given the inflation risk, particularly core inflation is still high. And that global interest rates also probably have to remain high for a while,” Mr. Peiris said.

The Bangko Sentral ng Pilipinas (BSP) has raised borrowing costs by 425 basis points (bps) to 6.25%, the highest in nearly 16 years.

Asked if the Philippines still has room for further tightening, Mr. Peiris said the 425-bp cumulative increases of the central bank is enough to bring down inflation back to the 2-4% target by end of the year. 

“Of course, if there’s another shock, [the BSP] should not rule out raising interest rates, but at the moment in this range, [policy] rates could be enough to bring down inflation to target by the end of the year,” he said.

A BusinessWorld poll last week showed 13 out of 18 analysts anticipate the Monetary Board to maintain the key benchmark interest rate at 6.25% on May 18, the third policy review this year.

“We think the Philippines is in good shape for maintaining a strong growth momentum. I think just for high inflation… fighting inflation is obviously on the first priority, and then fiscal consolidation and monetary policy tightening will help bring that down,” Mr. Peiris said.   

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the Philippine economy may also grow below 6% next year amid weak external demand.

However, household consumption may rebound next year amid softer inflation, Mr. Mapa said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government may still achieve its 6.5-8% growth target next year due to slower inflation.

“El Niño drought later this year [and] up to early 2024 [may] reduce agricultural output and overall GDP growth as this could lead to some pickup in inflation, but this would not have a significant drag on GDP growth,” Mr. Ricafort said.

IMF TECHNICAL ASSISTANCEMeanwhile, the BSP is tapping the International Monetary Fund (IMF) for technical assistance in developing a regulatory and supervisory framework for banks’ operational resilience.

“The BSP is keen to implement the Basel Committee on Banking Supervision’s Principles for Operational Resilience and has constituted a Technical Working Group to draft the regulation and formulate a supervisory approach,” the IMF said.

According to the multilateral lender, its Monetary and Capital Markets department conducted a technical assistance mission in the Philippines from Nov. 28 to Dec. 2, 2022.

While the Philippine central bank has issued regulations on operational resilience, the IMF said there are still regulatory gaps on corporate governance, information and communication technology/cyber risk, outsourcing, business continuity management, and operational risk management.

“The BSP has issued regulations on various components relevant to the topic of operational resilience, but such regulations need clarity and emphasis on the operational resilience principles which are separate and distinct from the operational risk management and business continuity,” the IMF said.

However, already strong business continuity plans among banks in the face of severe climate-related challenges could reduce the potential gap between the existing regulatory framework and the required regulations to implement operational resilience principles.

The IMF has been providing technical assistance to its member countries across a wide range of economic and financial issues. — Keisha B. Ta-asan

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