THE International Monetary Fund (IMF) has cut its growth projections for the Philippines following a slowdown in private consumption.
Elif Arbatli-Saxegaard, chief of a visiting IMF mission, told a briefing on Wednesday that the global lender now expects the country to grow by 5.8 percent this year, down from a July forecast of 6.0.
The outlook for 2025 was also trimmed, to 6.1 percent from 6.2 percent.
Both forecasts fall below the government’s 6.0- to 7.0-percent target for 2024 and the 6.5-7.5 percent for the following year.
“The downward revision from our July forecast reflects our view that private consumption is going to grow slightly with less momentum,” Saxegaard said.
She qualified, however, that “the downgrade is very small and reflects the fact that the first half private consumption growth was lower than what we had anticipated.”
This was likely due to high food prices, Saxegaard added.
“With the ongoing efforts of the Philippine government, including nonmonetary efforts to reduce food prices and especially rice prices, we do think that this will be supportive of consumption growth going forward.”
Gross domestic product (GDP) growth averaged 6.0 in the first half following a below-target 5.8 percent in January-March and a better-than-expected 6.3 percent in the second quarter.
Finance Secretary Ralph Recto last month said that growth could hit 6.1 percent this year, to be helped by slower inflation.
GDP growth was just 5.5 percent last year, missing the 6.0- to 7.0-percent target, as high interest rates and inflation dampened household spending.
Inflation, which hit a 14-year high of 8.7 percent in January last year, has since returned to the 2.0- to 4.0-percent goal. It eased to 3.3 in August and is expected to end the year well within target.
The IMF trimmed its forecast for 2024 inflation to 3.3 percent and said the rate would moderate to 3.0 percent next year.
“That would be supported by lower food and core inflation remaining well within the target,” Saxegaard said.
“Downside risks to the outlook could include a slowdown in major economies that could disrupt trade and financial flows, commodity price volatility and supply shocks, and an escalation of geopolitical tensions,” she added.
“However, an easing of global financial conditions, or faster than anticipated private investment linked to public-private partnerships and larger foreign direct investments inflows could stimulate higher growth.”
Lower inflation has allowed the Bangko Sentral ng Pilipinas (BSP) to start lowering key interest rates, in August announcing a 25 basis point (bps) cut.
Amid speculation whether the BSP would opt to follow the jumbo 50-bps cut announced by the US Federal Reserve last month, the IMF said a “gradual” easing would be appropriate.
“With inflation and inflation expectations returning to target, a continued gradual reduction of the policy rate is appropriate,” Saxegaard said.
“Along this declining rate path, it will be still important for the BSP to anchor inflation expectations in the target band and remain data dependent and agile.”
The IMF, however, declined to suggest a pace and magnitude for potential cuts at the BSP’s policy-setting meetings on October 16 and December 19.
BSP Governor Eli Remolona said on Monday that they had scope to do a 50-basis-point rate cut in one policy meeting, but such a big reduction would only happen if there were worries about a so-called hard landing for the economy.
The Philippines’ current account deficit, meanwhile, is now expected to hit 2.0 percent of GDP this year compared to the 2.1 percent forecast in June.
It expects the shortfall to hit 1.9 percent next year.
