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‘Global shocks’ may weigh on PHL growth in 2023 — IMF

By Keisha B. Ta-asan

THE PHILIPPINE ECONOMY continues to be anticipated to stay one of many strongest performers within the area subsequent yr, though it could face “shocks” arising from a looming world financial slowdown, an Worldwide Financial Fund (IMF) official mentioned.

This because the IMF on Tuesday downgraded its world financial development forecast to 2.7% subsequent yr, from 2.9% beforehand, citing the influence of “the Russian invasion of Ukraine, a cost-of-living disaster attributable to persistent and broadening inflation pressures, and the slowdown in China.”

In its newest World Financial Outlook, the IMF saved the gross home product (GDP) development forecast for the Philippines unchanged at 6.5% this yr and 5% in 2023.

The federal government targets 6.5-7.5% GDP development for this yr, and 6-8% development for 2023 to 2025.

“(The) influence of worldwide shocks will weigh on the economic system within the coming months and in 2023. GDP development is due to this fact projected to sluggish to five% in 2023, earlier than selecting as much as about 6% in 2024. (Progress of) 5% nonetheless locations the Philippines among the many sturdy regional performers in 2023,” IMF Consultant to the Philippines Ragnar Gudmundsson mentioned in an e-mail to BusinessWorld.

The multilateral lender’s 2023 development outlook for the Philippines is the second quickest amongst 5 Affiliation of Southeast Asian Nations (ASEAN) member international locations, after Vietnam (6.2%) and tied with Indonesia (5%).

Nevertheless, the IMF lowered its ASEAN-5 forecast to 4.9% in 2023, from the 5.1% estimate given in July, “to replicate primarily much less favorable exterior situations, with slower development in main buying and selling companions resembling China, the euro space, and the US.”

“The exterior atmosphere is characterised by nice uncertainty, and there are draw back dangers to our forecast linked to spillovers from Russia’s struggle in Ukraine, commodity value shocks, and a tightening in world monetary situations,” Mr. Gudmundsson mentioned.

“With the chance of recession rising in international locations accounting for about one-third of worldwide output, profitable multilateral cooperation is required to keep away from fragmentation and financial hardship,” he mentioned.

In its report, the IMF mentioned the revised 2.7% world development forecast for 2023 has a “25% chance that it may fall beneath 2%.” That is the weakest development since 2001, aside from the worldwide monetary disaster and the peak of the coronavirus illness 2019 pandemic.

“In brief, the worst is but to come back, and for many individuals 2023 will really feel like a recession,” it added.

The IMF mentioned it expects world inflation to rise to eight.8% this yr, however ease to six.5% in 2023 and 4.1% by 2024.

“Financial coverage may miscalculate the proper stance to cut back inflation. Coverage paths within the largest economies may proceed to diverge, resulting in additional US greenback appreciation and cross-border tensions. Extra power and meals value shocks would possibly trigger inflation to persist for longer. World tightening in financing situations may set off widespread rising market debt misery,” it mentioned.

Within the Philippines, inflation accelerated to six.9% in September, from 6.3% in August. It additionally marked the sixth straight month that inflation breached the Philippine central financial institution’s 2-4% goal this yr.

The Bangko Sentral ng Pilipinas (BSP) has raised benchmark rates of interest by 225 foundation factors (bps) this yr to tame inflation.

“Continued tightening of financial coverage within the close to time period could be anticipated to take care of second-round results which have began rising, together with for wages and transport prices,” Mr. Gudmundsson mentioned.

“As a commodity importer, the Philippine economic system is going through a damaging phrases of commerce shock which, mixed with rising rates of interest within the US and different superior economies, is putting stress on the peso,” he added.

The nation’s commerce deficit hit a file $6 billion in August.

“On this context, alternate charge flexibility stays crucial as a shock absorber. If market situations grow to be excessively risky and disorderly, international alternate intervention may help alleviate inflationary pressures and relieve a few of the stress on financial coverage,” he mentioned. 

The peso closed at P58.865 per greenback on Tuesday, gaining 13.5 centavos from its record-low end of P59 on Monday, based mostly on Bankers Affiliation of the Philippines knowledge.

Thus far, the native unit weakened by 15.4% or P7.865 from its P51-per-dollar end on Dec. 31, 2021.

“Contemplating the present risky world atmosphere, resolution making might want to stay nimble and data-driven,” Mr. Gudmundsson mentioned.

He additionally mentioned financial coverage could be supported by a tighter fiscal coverage, whereas preserving important expenditures for infrastructure, human capital, and social safety.

“Fiscal consolidation over the medium time period can notably be achieved by renewed efforts to mobilize revenues domestically,” he added.

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