The ASEAN+3 Macroeconomic Research Office (AMRO) has lowered its economic growth forecast for the Philippines for this year while maintaining its outlook for 2025 due to easing inflation and a less restrictive monetary policy.

In a statement on Monday, Dec. 2, the regional think tank said the country’s economy, as measured by its gross domestic product (GDP), is expected to grow by 5.8 percent this year and 6.3 percent in 2025.

AMRO’s latest projection for 2024 is lower compared to the 6.1 percent growth previously forecast.

“Growth will be supported by strong domestic demand and a pickup in external demand,” AMRO said.

In the first three quarters of 2024, the economy grew steadily at 5.8 percent, bolstered by a recovery in public consumption and construction investment, as well as export recovery.

However, AMRO noted that growth prospects could be subject to a few risk factors, such as higher inflation as it could dampen consumption, while a potential sharp slowdown in major trading partners could pose risks to growth.

Heightened geopolitical risks also increased the likelihood of global supply disruptions and lead to a resurgence of inflationary pressure.

Moreover, the country’s long-term potential growth could be challenged by insufficient infrastructure investment, vulnerabilities to climate change, and the prolonged scarring effects from the Covid-19 pandemic.

Meanwhile, AMRCO expects the country’s inflation to continue its declining trend from last year, mainly driven by lower global commodity prices, the government’s inflation-containing measures, and tight monetary policy.

AMRO expects that headline inflation to fall to 3.2 percent this year from 6.0 percent in 2023 and maintain at 3.2 percent in 2025.

As inflationary pressure eased, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) delivered the first rate cut on Aug. 15, signaling a calibrated shift to a less restrictive monetary policy stance. This was followed by another 25-basis-point rate reduction on Oct. 16.

The BSP also announced further reductions in the reserve requirement ratio in late October as part of its efforts to reduce distortions in the financial system.

The current fiscal-monetary policy mix is appropriate and can be adjusted further to support economic growth while rebuilding policy buffers. If inflation continues to ease within the BSP target band, there is room to adopt a less restrictive monetary policy stance.

A whole-of-government approach should be taken to address inflationary pressures if supply-side risks emerge.

While the need for strategic adjustments in the medium-term fiscal policy to support the economy is justifiable, the pace of fiscal consolidation should be accelerated when conditions allow.

Further revenue mobilization, efficiency improvement in expenditure, and long-term fiscal reforms should continue to be carried out.