By Luisa Maria Jacinta C. Jocson, A reporter
THE PHILIPPINE ECONOMY will be conThe International Monetary Fund (IMF) said, however, that risks are on the downside due to possible external shocks.
At the same time, Finance Secretary Ralph G. Recto said the Philippines probably failed to hit its growth target of 6-6.5% in 2024, amid typhoons.
“If it reaches 6% in the fourth quarter, I would be happy with that. I don’t think it will reach 6% in 2024, but I think it will exceed 6% in 2025,” said Mr. Recto told reporters on 16 Jan.
In the first nine months of 2024, Philippine growth reached 5.8%, which is similar to the IMF’s full-year projection. The first phase of the fourth quarter and the full year gross domestic product (GDP data) will be released on Jan. 30.
In its latest World Economic Outlook update, the IMF kept its GDP forecasts for the Philippines at 6.1% this year and 6.3% in 2026, same as its projection in October.
This will fall within the government’s GDP growth targets of 6-8% for 2025 and 2026.
“Growth in 2025-2026 is expected to be driven primarily by domestic demand, ie consumption and investment,” an IMF spokesperson said by email.
“Consumption growth will be supported by lower food prices and a gradual easing of monetary policy,” it added.
The latest data from the Philippine Statistics Authority showed domestic consumption, which accounts for three-quarters of the economy, jumped 5.1% in the third quarter from 4.7% in the previous quarter.
“Investment growth is expected to continue after targeting public investment, gradually lowering borrowing costs and accelerating the implementation of public-private partnership projects and foreign direct investment (FDI), following recent legislative changes,” the IMF said. .
Gross capital formation, which is part of economic investment, grew 13.1% in the third quarter, a change from 0.3% a year ago.
However, the IMF said the balance of risks to the growth outlook is tilted to the downside, citing external risks.
“Some of the major downside risks include asset price volatility, as well as new asset shocks, which may require a tightening of monetary policy to strengthen inflation expectations,” he said.
The IMF also pointed out shocks such as the tension in the country’s situation that could disrupt trade once and for all other financial flows.
“Higher long-term policy rates in advanced economies (could) lead to outflows, and tighter financial conditions,” it added.
The agency also highlighted climate shocks and extreme weather events that could lead to economic losses.
“There are also upside risks to the outlook, including higher-than-expected growth in private investment through public-private partnerships, higher inward FDI following a faster-than-expected global recovery, or stronger reform momentum,” it added.
INFLATION
Meanwhile, the IMF said it expects inflation to remain at the central bank’s target of 2-4% in the near to medium term.
It projects headline inflation at 2.8% this year and 3% in 2026.
“However, risks are tilted to the upside, as the country’s growing tensions, extreme weather conditions, and commodity price volatility continue to create inflationary risks,” the statement said.
Headline inflation averaged 3.2% in 2024, within the central bank’s target.
This year, the Bangko Sentral ng Pilipinas (BSP) expects inflation at 3.3%.
The IMF said the central bank could gradually reduce borrowing costs and “move towards neutrality.”
“As inflation and inflation expectations return to target and the negative output gap opens, a further reduction in the policy rate will be appropriate,” he said.
The BSP cut interest rates by 75 basis points (bps) last year, delivIt has made three straight rate cuts since it began its easing cycle in August.
The central bank has shown continued easing this year as the current policy rate at 5.75% is still in the “boundary zone,” said BSP Governor Eli M. Remolona, Jr. previously.
“On the downside, the BSP should ensure that its stance continues to support inflation and inflation expectations firmly within the target band.”
“Amidst the uncertainty that exists, a data-driven approach, and clear and effective communication about policy settings will be important to manage expectations and provide clarity in the BSP’s response,” it added.
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