IMF cuts PH forecasts | Manila times

The International Monetary Fund (IMF) has lowered its growth forecast for the Philippines amid slowing private consumption.

Elif Arbatli-Saxegaard, visiting IMF mission chief, told a briefing Wednesday that the global lender now expects the country’s economy to grow 5.8 percent this year, up from a July forecast of 6.0.

The perspective for 2025 was also cut to 6.1%. with 6.2 percent

IMF Chief of Mission Elif Arbatli Saxegaard. Photo from DBM’s FB page

Both forecasts are lower than the government’s 2024 target of 6.0-7.0%. and 6.5–7.5 percent for the next year.

“The downward revision of our July forecast reflects our view that private consumption will grow modestly, at a slower pace,” Saxegaard said.

However, she stressed that “the downgrade is very small and reflects the fact that private consumption growth in the first half was lower than we expected.”

This was likely due to high food prices, Saxegaard added.

“Given the continued efforts of the Philippine government, including non-monetary efforts to lower food prices and especially rice prices, we really think this will support consumption growth in the future.”

Gross domestic product (GDP) growth averaged 6.0 in the first half, following a lower-than-target 5.8 percent in January-March and a better-than-expected 6.3 percent in the second quarter.

Finance Secretary Ralph Recto said last month that economic growth could reach 6.1 percent this year, helped by slower inflation.

Last year, GDP growth was just 5.5 percent, falling short of the 6.0-7.0 percent target as high interest rates and inflation curbed household spending.

Inflation, which hit a 14-year high of 8.7 percent in January last year, has since returned to the target of 2.0-4.0 percent. It dropped to 3.3 in August and is expected to end the year on target.

The IMF lowered its inflation forecast for 2024 to 3.3%. and stated that next year this rate will drop to 3.0%.

“This would be supported by food inflation being lower and remaining on target,” Saxegaard said.

“Risks to the outlook could include a slowdown in major economies that could disrupt trade and financial flows, commodity price volatility and supply shocks, as well as escalating geopolitical tensions,” she added.

“However, easing global financial conditions or faster-than-expected private investment linked to public-private partnerships and greater inflows of foreign direct investment could spur higher growth.”

Lower inflation enabled the Bangko Sentral ng Pilipinas (BSP) to begin cutting key interest rates, announcing a 25 basis point (bp) cut in August.

Amid speculation about whether the BSP would opt for the massive 50 basis point rate cut announced by the US Federal Reserve last month, the IMF said a “gradual” easing of monetary policy would be appropriate.

“With inflation and inflation expectations returning to target, it is appropriate to continue the gradual reduction of the key interest rate,” Saxegaard said.

“On this downward path in interest rates, it will remain important for the BSP to anchor inflation expectations within its target band and maintain data dependency and flexibility.”

However, the IMF declined to suggest the pace and scale of potential cuts during the BSP policy-making meetings on October 16 and December 19.

BSP Governor Eli Remolona said on Monday that there is a possibility of cutting interest rates by 50 basis points in one political meeting, but such a large reduction will only happen if there are concerns about the so-called hard landing of the economy.

Meanwhile, the Philippines’ current account deficit is expected to reach 2.0 percent of GDP this year, up from 2.1 percent forecast in June.

It expects the shortfall to reach 1.9 percent next year.