The Philippines' gross domestic product (GDP) growth is expected to slow down in the second half of this year until mid-2024 as the economy absorbs the central bank’s aggressive policy rate tightening as an anti-inflation response, according to an official of the International Monetary Fund (IMF).

IMF Resident Representative to the Philippines, Ragnar Gudmundsson, said that while the IMF has revised higher its 2023 GDP forecast from five percent to six percent, it expects lower growth in 2024 of 5.8 percent versus its earlier (January 2023) estimate of six percent.

“Our projection for 2023 was revised upward mainly on account of the stronger-than expected economic performance observed in the last quarter of 2022, indicators for the first months of 2023 showing continued strong consumer demand, and a more positive outlook following the reopening of China’s economy,” Gudmundsson told Manila Bulletin in an email.

As for 2024, Gudmundsson said the first two quarters could see slower growth. “We took into consideration the lagged effect of recent monetary policy tightening, which is more likely to affect the second half of 2023 and the first half of 2024, leading to slightly lower growth in 2024,” he said.

Earlier this month, the IMF released its April 2023 World Economic Outlook report where it adjusted the country’s GDP growth forecast higher for 2023 but reduced to a lower projection for 2024.

However among countries in the ASEAN trade bloc, the country’s projected real GDP growth is the highest in the region.

The IMF expects ASEAN-5 countries which includes the Philippines, Indonesia, Malaysia, Singapore and Thailand will 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.

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. Based on BSP estimates, for every 25 bps increase in the policy rate, it cuts growth by about two bps.

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 government’s 6.5 percent to eight percent mid-term projections for 2024 until 2028.

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.

BSP Governor Felipe M. Medalla has been signalling a possible pause on May 18, provided the April inflation will be lower than March’s 7.6 percent. If April inflation is lower, it will be the third consecutive month that consumer price index has contracted.

Medalla has said that if the month-on-month inflation rate will fall below 0.2 percent for six straight months, they will consider a cut in the overnight borrowing rate.

But while Medalla sees “near the end” of a tightening cycle that raised the BSP rate from two percent to 6.25 percent in the last nine Monetary Board policy meetings, he said a rate cut will only happen if the BSP sees not just low inflation but more “good data points” such as “six straight month-on-month of below 0.2 (percent)”.