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The International Monetary Fund (IMF) slashed its 2022 growth forecast for the Philippines from 6.7 percent to 6.5 percent after noting the impact of global economic, according to a report by Philippine News Agency.
In a briefing on Monday after the debt lender’s annual Article IV Consultation, Mission chief Cheng Hoon Lim said the 2023 growth forecast is at 5 percent, which is the same as the figure last July under the World Economic Outlook (WEO) update.
“The Philippines is not isolated from the rest of the world. Its leading trading partners are the US and China and if these countries slow down, (the) Philippines will also slow down. And that’s the main reason why we revised our growth projections to 6.5 percent for this year and 5 percent next year,” she said.
Lim said the IMF has revised down its global growth projection for the world economy by 2 percentage points since October last year from 4.9 percent to 3.2 percent for 2022.
She said the revision in the Philippines’ growth forecast is not as drastic as that of the outlook for the global economy “because domestic demand has been very strong.”
Lim said IMF’s growth outlook for the domestic economy “is subject to significant downside risks, where policy tradeoffs between output and inflation would become more acute.”
Among the downside risks to growth are the rise in coronavirus disease 2019 (Covid-19) infections, larger-than-expected changes in monetary policy around the world, deepening global slowdown, elevated inflation rate, and natural disasters.
These are, however, expected to be countered by the impact of the ongoing conflict between Russia and Ukraine, and bids to address the elevated inflation rate elsewhere.
“Looking ahead, sustaining the economic recovery will require a focus on policies to address inflationary risks, increase fiscal and financial resilience to adverse shocks, and successful implementation of reforms to mitigate pandemic scarring and raise productivity growth,” she added.
Lim said depreciation of the Philippine peso is in line with those of other currencies as the Federal Reserve continues to hike its key rates to tame the US’ four-decade high inflation rate.
She added no one knows how much interest rates will really increase “but clearly, the peso will be affected by further monetary tightening in the US.”
To date, the peso is trading at the 58-level against the US dollar after starting the year at 51-level.
At the end of the Article IV Consultation, held from Sept. 12 to 26, among the policy recommendations include that the Bangko Sentral ng Pilipinas (BSP) will provide “clear communication about inflation.”
This, as it noted “BSP’s forward looking policy intentions can help reduce uncertainty and improve policy transmission.”
Lim declined to forecast how many more hikes the BSP’s policy-making Monetary Board (MB) will decide for the year.
She said whenever there are disorderly market conditions, there is really a need for a foreign exchange intervention (FSI).
“Now, how much and when that should take place? We leave it to the capable judgment of BSP. They can decide on the timing and by how much they could intervene,” she added.
The BSP’s key rates have been increased by a total of 225 basis points since last May due to the rise in domestic inflation rate and to address interest rate differential with the US.
Markets forecast the BSP to continue hiking rates as the Fed remains in tightening mode.
Philippine monetary authorities, in turn, vowed to do “follow-through action to anchor inflation expectations and prevent price pressures from becoming further entrenched.”
“The domestic economy can accommodate a reasonable tightening of the monetary policy stance, as demand has generally held firm owing to improved employment outturns and ample liquidity and credit,” the BSP said in a statement issued after the MB’s rate setting meeting last Sept. 22.