The International Monetary Fund (IMF) has revised its economic growth forecast for the Philippines this year to 5.3% from its 6.2% projection in July, due to persistent high inflation, according to a statement released on Tuesday. The IMF also noted that the Philippine economy expanded at its slowest rate in nearly 12 years in the second quarter of 2023, as high inflation and a series of interest rate hikes dampened consumer demand.
Inflation in August accelerated for the first time in seven months to 5.3%, primarily driven by an increase in food and transport costs. This trend has maintained pressure on the central bank to sustain its hawkish policy stance. The IMF warned that core inflation remains elevated and thus, a “higher-for-longer policy rate path is warranted until inflation firmly falls within the target range, alongside a tightening bias to anchor inflation expectations.”
The IMF Mission Head to the Philippines, Jayanath Peiris, pointed out that the economic slowdown in the second quarter was more severe than expected. He attributed this downturn to government underspending and higher interest rates, which are likely to persist due to stubbornly high inflation. Peiris added that they expect both headline inflation and core inflation only to come within the target band in the first quarter of 2024.
Looking ahead, the IMF forecasts that the Philippines’ inflation will average close to 6% this year before easing close to 3.5% in 2024. Despite these challenges, the IMF remains optimistic about the country’s economic recovery, projecting a growth rate of 6% for 2024.
Peiris also highlighted that despite potential weaknesses in the global economy next year, the Philippines could benefit from increased export demand. He said that demand for Philippine exports— goods, electronics, and services, BPOs is expected to be strong, particularly because the US economy is performing quite well, and the Philippines has more exposure to the US than other parts of the world.
Meanwhile, Finance Secretary Benjamin Diokno indicated that Philippine economic managers might lower their economic growth target for the year during the next Development Budget Coordination Committee (DBCC) meeting on October 19.
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