The International Monetary Fund (IMF) expects the Philippine economy to grow faster in 2025 and 2026 on the back of higher spending and slower inflation.
“Growth is expected to accelerate in 2024-25, supported by disinflation, and gradually declining borrowing costs as monetary policy normalizes,” the IMF Executive Board said at the conclusion of the 2024 Article IV consultation with the Philippines.
The IMF sees the gross domestic product of the Philippines expanding 5.8 percent in 2024, 6.1 percent in 2025 and 6.3 percent in 2026. Inflation is seen at 3.2 percent in 2024, 2.8 percent in 2025 and 3.0 percent in 2026.
“The Philippines has successfully navigated multiple external headwinds in recent years and is pursuing an extensive plan to achieve high and inclusive growth. After moderating in 2023, growth is expected to pick up in 2024-25, supported by gradual monetary policy easing,” it said.
“Inflation has declined to within the target band, though supply shocks pose upside risks. Risks to the growth outlook are tilted to the downside, including from recurrent commodity price volatility, escalation of geopolitical tensions and lower-than-expected payoffs from recent reforms. With macroeconomic policies well calibrated to achieve a soft landing in the near-term, expanding the economy’s growth potential will be pivotal for the medium-term outlook,” the IMF said.
Data showed that GDP growth recovered to 5.8 percent in the first three quarters of 2024, driven by strong public consumption and public construction, which was partially offset by the El Nino weather phenomena and subdued private consumption.
Both headline and core inflation decelerated from their peaks in early 2023—to 2.3 and 2.4 percent respectively in October 2024. The current account deficit narrowed to 2.7 percent of GDP in 2023 from 4.5 percent and is expected to narrow further in 2024 amid lower commodity prices, a gradual pick-up in tourism and business process outsourcing sector receipts, the IMF said.
It said the BSP has room to ease the policy rate gradually towards a neutral stance. With inflation and inflation expectations returning towards target and the output gap turning negative, a continued gradual reduction in the policy rate is appropriate.
Systemic risks within the financial system are moderate, but pockets of vulnerabilities remain, the IMF said. It said the banking system weathered the high interest environment well so far with sufficient liquidity and capital buffers.
The banking system has sufficient liquidity and capital buffers, and non-performing loans are low. However, parts of the commercial real estate sector have seen persistently high vacancies and falling rents, and non-performing housing loans remain elevated.
“The rapid growth in consumer loans warrants close monitoring. The BSP should be ready to adjust macroprudential policy in line with developments in the financial cycle to mitigate the build-up of vulnerabilities and move toward a positive neutral level for the countercyclical capital buffer. Its capacity to assess financial stability risks and resolve troubled financial institutions should also be strengthened,” it said.
“The Philippine economy holds significant potential with its abundant natural resources, untapped blue economy, and a sizable demographic dividend. Unlocking the medium-term growth potential will crucially depend on comprehensive and well-sequenced structural reforms,” the IMF said.
“These reforms, coupled with strengthened social protection programs, should aim to boost job creation, enhance productivity, increase resilience to climate change, and reduce poverty and inequality. Priority areas include upgrading infrastructure, making significant investments in healthcare and education, addressing land fragmentation and low productivity in the agricultural sector, and enhancing governance. In this context, digitalization provides an important opportunity to improve access to quality education, promote financial inclusion, and enhance public spending efficiency,” it said.
