The International Monetary Fund (IMF) has raised its 2023 Philippine gross domestic product (GDP) growth forecast to 6.2 percent based on the strong first quarter outturn, but reduced its 2024 projection to 5.5 percent due to the effects of the central bank’s monetary policy tightening.

The latest IMF growth forecasts are part of the July update of the World Economic Outlook (WEO) report released on Tuesday, July 25, Washington time (9pm, Manila time). The previous WEO, which was April 2023, pegged the country’s GDP growth at six percent for this year and 5.8 percent for 2024.

IMF Resident Representative to the Philippines Ragnar Gudmundsson said the IMF adjusted the 2023 GDP forecast higher because of sustained demand. “We’ve seen that demand and growth dynamics have remained strong in 2023 so we’ve adjusted upwards our projection for 2023,” he said at the sidelines of the post-SONA Philippine Economic Briefing (PEB) on Tuesday in Manila. He was one of the panelist during the event.

As for the lower 2024 GDP projection, Gudmundsson said the projection was revised “slightly downwards” to 5.5 percent from 5.8 previously “because of global headwinds and lagged effects of policy tightening.”

“We still see that the impact of the tightening and possible slowdown in growth in advanced economies could effect the Philippine economy next year a little bit more and this is why we think that growth may come down slightly in 2024 to reach 5.5 percent,” he added.

Gudmundsson said the IMF also revised its inflation forecast for the Philippines to 5.6 percent for 2023, lower than its previous projection of 6.3 percent back in April.  For next year, the forecast is still 3.2 percent inflation.

The IMF’s GDP forecasts are within the government’s own six percent to seven percent estimates for 2023 but lower than its six percent average projection for 2024. The 2024 forecast is also 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.

As of the first quarter this year, the local economy grew by 6.4 percent based on a strong domestic demand. Last year, the country posted 7.6 percent GDP growth, the highest in emerging economies. Reduced Covid-related restrictions opened up more sectors of the economy, creating jobs and further boosting economic activity in 2022.

The IMF’s inflation projection for the country, meantime, is higher than the Bangko Sentral ng Pilipinas’ 5.4 percent estimates for 2023 and 2.9 percent for 2024.

Overall, the latest July WEO update projects global growth of three percent for both 2023 and 2024, lower than the projected 3.5 percent for 2022.

“The rise in central bank policy rates to fight inflation continues to weigh on economic activity,” said the IMF in the report.

Global headline inflation is expected to decline to 6.8 percent this year from an estimated 8.7 percent in 2022. For 2024, it is seen to further drop to 5.2 percent.

“The balance of risks to global growth remains tilted to the downside (while) inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy,” warned the IMF.

The IMF also noted that in most economies, “the priority remains achieving sustained disinflation while ensuring financial stability.”

“Therefore, central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard,” said the IMF.

In May, in the conclusion of the IMF’s 2023 Article IV Consultation with local economic managers, the IMF said since inflation is still above-the-target of two percent to four percent, the BSP may keep its tightening mode for longer.

IMF Mission Head Shanaka Jay Peiris said risks to inflation remain on the upside, and a continued tightening bias may be appropriate until inflation falls decisively within the target range.

In response to the persistent above-target high inflation, the BSP’s Monetary Board has raised the key borrowing rate by a cumulative 425 basis points (bps) to 6.25 percent as of March 23. This was a year-long tightening bias for the BSP, mirroring the US Federal Reserve’s aggressive rate hikes.