PHILIPPINE STAR/ EDD GUMBAN

By Keisha B. Ta-asan

THE PHILIPPINE ECONOMY is still expected to remain one of the strongest performers in the region next year, although it may face “shocks” arising from a looming global economic slowdown, an International Monetary Fund (IMF) official said.

This as the IMF on Tuesday downgraded its global economic growth forecast to 2.7% next year, from 2.9% previously, citing the impact of “the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.”

In its latest World Economic Outlook, the IMF kept the gross domestic product (GDP) growth forecast for the Philippines unchanged at 6.5% this year and 5% in 2023.

The government targets 6.5-7.5% GDP growth for this year, and 6-8% growth for 2023 to 2025.

“(The) impact of global shocks will weigh on the economy in the coming months and in 2023. GDP growth is therefore projected to slow to 5% in 2023, before picking up to about 6% in 2024. (Growth of) 5% still places the Philippines among the strong regional performers in 2023,” IMF Representative to the Philippines Ragnar Gudmundsson said in an e-mail to BusinessWorld.

The multilateral lender’s 2023 growth outlook for the Philippines is the second fastest among five Association of Southeast Asian Nations (ASEAN) member countries, after Vietnam (6.2%) and tied with Indonesia (5%).

However, the IMF lowered its ASEAN-5 forecast to 4.9% in 2023, from the 5.1% estimate given in July, “to reflect mainly less favorable external conditions, with slower growth in major trading partners such as China, the euro area, and the US.”

“The external environment is characterized by great uncertainty, and there are downside risks to our forecast linked to spillovers from Russia’s war in Ukraine, commodity price shocks, and a tightening in global financial conditions,” Mr. Gudmundsson said.

“With the risk of recession rising in countries accounting for about one-third of global output, successful multilateral cooperation is required to avoid fragmentation and economic hardship,” he said.

In its report, the IMF said the revised 2.7% global growth forecast for 2023 has a “25% probability that it could fall below 2%.” This is the weakest growth since 2001, except for the global financial crisis and the height of the coronavirus disease 2019 pandemic.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” it added.

The IMF said it expects global inflation to rise to 8.8% this year, but ease to 6.5% in 2023 and 4.1% by 2024.

“Monetary policy could miscalculate the right stance to reduce inflation. Policy paths in the largest economies could continue to diverge, leading to further US dollar appreciation and cross-border tensions. More energy and food price shocks might cause inflation to persist for longer. Global tightening in financing conditions could trigger widespread emerging market debt distress,” it said.

In the Philippines, inflation accelerated to 6.9% in September, from 6.3% in August. It also marked the sixth straight month that inflation breached the Philippine central bank’s 2-4% target this year.

The Bangko Sentral ng Pilipinas (BSP) has raised benchmark interest rates by 225 basis points (bps) this year to tame inflation.

“Continued tightening of monetary policy in the near term can be expected to deal with second-round effects that have started emerging, including for wages and transport costs,” Mr. Gudmundsson said.

“As a commodity importer, the Philippine economy is facing a negative terms of trade shock which, combined with rising interest rates in the US and other advanced economies, is placing pressure on the peso,” he added.

The country’s trade deficit hit a record $6 billion in August.

“In this context, exchange rate flexibility remains critical as a shock absorber. If market conditions become excessively volatile and disorderly, foreign exchange intervention can help alleviate inflationary pressures and relieve some of the pressure on monetary policy,” he said. 

The peso closed at P58.865 per dollar on Tuesday, gaining 13.5 centavos from its record-low finish of P59 on Monday, based on Bankers Association of the Philippines data.

So far, the local unit weakened by 15.4% or P7.865 from its P51-per-dollar finish on Dec. 31, 2021.

“Considering the current volatile global environment, decision making will need to remain nimble and data-driven,” Mr. Gudmundsson said.

He also said monetary policy can be supported through a tighter fiscal policy, while preserving essential expenditures for infrastructure, human capital, and social protection.

“Fiscal consolidation over the medium term can notably be achieved through renewed efforts to mobilize revenues domestically,” he added.