The International Monetary Fund (IMF) raised its growth forecasts for the Philippine economy to six percent this year, higher than previous projection of five percent back in January, despite inflation spikes, based on its April 2023 World Economic Outlook (WEO) report released on Tuesday, April 11.

Among countries in the ASEAN trade bloc, the country’s projected real gross domestic product (GDP) growth is the highest in the region because of continuing pent-up demand despite uncertain global challenges.

For next year, the IMF also revised the Philippine GDP projection to 5.8 percent which was lower versus its previous six percent forecast.

“Although telegraphed by central banks, the rapid rise in interest rates and anticipated slowing of economic activity to put inflation on a downward path have, together with supervisory and regulatory gaps and the materialization of bank-specific risks, contributed to stresses in parts of the financial system, raising financial stability concerns,” said the IMF.

The Bangko Sentral ng Pilipinas’ (BSP) cumulative 425 basis points (bps) rate hikes since May 19, 2022 until March 23 to curb volatile price pressures will affect the country’s GDP growth. For every 25 bps increase in the policy rate, it cuts growth by about two bps, based on BSP estimates.

The IMF growth projections for 2023 of six percent is on the lower side of the Marcos government’s six percent to seven percent target. Meanwhile, its 2024 forecast of 5.8 percent is below the 6.5 percent to eight percent mid-term projections for 2024 until 2028 of the inter-agency Development Budget Coordination Committee which tracks the Philippine growth path.

Last year, the local GDP grew by 7.6 percent, which exceeded the government target of 6.5 percent to 7.5 percent. Reduced Covid-related restrictions opened up more sectors of the economy, creating jobs and further boosting economic activity in 2022.

As for consumer price index (CPI), the IMF sees Philippine inflation of 6.3 percent for 2023 and 3.2 percent in 2024. This was higher than the January forecast of 4.7 percent for this year. It is also higher than BSP’s forecast of six percent and 2.9 percent for 2023 and 2024, respectively.

Based on the latest WEO report, the IMF expects global growth of 2.8 percent in 2023. This was lower than the 2.9 percent it projected in January and from an estimated 3.4 percent in 2022.  For 2024, the forecast growth is also lower at three percent compared to the January WEO of 3.1 percent.

The IMF said the global economy will continue to face a challenging growth outlook this year. “A return of the world economy to the pace of economic growth that prevailed before the bevy of shocks in 2022 and the recent financial sector turmoil is increasingly elusive. More than a year after Russia’s invasion of Ukraine and the outbreak of more contagious COVID-19 variants, many economies are still absorbing the shocks,” said the IMF.

Furthermore, it noted that the recent tightening in global financial conditions is “hampering the recovery” and that “many economies are likely to experience slower growth in incomes in 2023, amid rising joblessness (and with) central banks having driven up interest rates to reduce inflation, the road back to price stability could be long.”

The IMF said inflation expectations have so far remained anchored. “To ensure this remains the case, major central banks have generally stayed firm in their communications about the need for a restrictive monetary policy stance, signaling that interest rates will stay higher for longer than previously expected to address sticky inflation.”

The IMF’s baseline forecast for global CPI is to decline from 8.7 percent in 2022 to seven percent in 2023. “Disinflation is expected in all major country groups, with about 76 percent of economies expected to experience lower headline inflation in 2023. Initial differences in the level of inflation between advanced economies and emerging market and developing economies are, however, expected to persist,” said the IMF, adding that the projected disinflation reflects declining fuel and nonfuel commodity prices.

Meanwhile, growth in the ASEAN-5 countries – the Philippines, Indonesia, Malaysia, Singapore and Thailand --  is seen to grow to a slower pace of 4.5 percent in 2023 from the emerging 2022 growth of 5.5 percent. For the 2024 growth, it should be higher at 4.6 percent.

The Philippines’ projected six percent GDP growth for 2023 is the highest among ASEAN-5 plus China and India. The others in the top five in terms of growth forecast is India with 5.9 percent, Vietnam with 5.8 percent, China with 5.2 percent, and Indonesia with five percent.

For advanced economies, the IMF forecast 1.3 percent growth for this year and 1.4 percent in 2024. The emerging 2022 growth is 2.7 percent. Advanced economies include US, Canada, and the Euro area such as Germany, France, Italy, Spain, and the United Kingdom. In Asia, Japan is an advanced economy by IMF standards.

“Although the forecast for 2023 is modestly higher (by 0.1 percentage point) than in the January 2023 WEO Update, it is well below the 2.6 percent forecast of January 2022. About 90 percent of advanced economies are projected to see a decline in growth in 2023,” said the IMF.

For emerging and developing Asia which includes both China and India, the IMF maintained its 2023 projection of 5.3 percent versus the emerging 2022 growth of four percent. Next year, the growth is expected at 5.1 percent for this region.

“For emerging market and developing economies, economic prospects are on average stronger than for advanced economies, but these prospects vary more widely across regions,” said the IMF.

For the whole of Asia which includes both advanced Asia and emerging Asia, the IMF projects growth of 4.6 percent for 2023 and 4.4 percent in 2024 – both higher than the emerging 2022 growth of 3.8 percent.

Advanced Asia includes Japan, Korea, Taiwan, Australia, Singapore, Hong Kong, New Zealand and Macao. Emerging and developing Asia are ASEAN-5 with China and India.

The IMF and the World Bank Group are holding their spring meetings in Washington DC from April 10 until April 16. The Philippines’ economic team led by Finance Secretary Benjamin E. Diokno and BSP Governor Felipe M. Medalla are currently in the US for an economic briefing on the sidelines of the IMF-World Bank annual event.