IMF Downgrades Philippine Growth Forecast Amid Public Spending Woes

The International Monetary Fund (IMF) on Friday again downgraded its growth forecasts for the Philippines, citing the weaker-than-expected performance in the second quarter and the slow rebound in public spending in the wake of the flood control corruption scandal. According to IMF mission chief Andrea Pescatori, economic growth is now expected to average 3.4% this year, slower than the 3.9% outlook in July. The IMF also slashed its growth forecast for 2027 to 5.1% from 5.5%. "Most of the revision comes from the Q2 data release, and the GDP was much lower than what we had projected," he said, as second-quarter growth stood at 2.3%, the weakest footing since the 1.8% growth in the fourth quarter of 2009, excluding the COVID-19 pandemic years. "Many of our conversations were pointing to a strong rebound in public investment in the second half of the year, and with that also a faster recovery in business sectors. We believe that didn’t happen, or is not going to happen," he added. Data from the Department of Budget and Management (DBM) stood at P367.4 billion in the first half, down 40.8% from P620.2 billion in the same period last year, and only 39% of the P931.54 billion in the same period. "The rebound in public investment will actually not be full according to the most recent budget numbers," Pescatori said, noting that the government is now pushing for public-private partnerships (PPPs) but this would come with uncertainties in execution. "In that sense, we have also slightly revised down public investment plus PPP projects on the economic activity," he added. The IMF also revised its inflation outlook for this year slightly lower to 5.6% from 5.7% in July, but hiked its forecast for 2027 to 4.1% from 3.3% previously. "In the recent weeks, we see oil prices moving up strongly. This means that most of our revisions are not for 2026… but more for next year. It’s mostly driven by both oil and food prices," Pescatori told reporters in a briefing in Manila. Pescatori likewise cited the possible impact of the severe El Niño on agricultural output and inflation, with global rice prices expected to increase by as much as 25%. The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has already hiked rates for three straight meetings by a cumulative 75 basis points to tame inflation. "We know that monetary policy affects the economy with lags. It’s not instantaneous, especially if it does not operate through the exchange rate, but just through the interest rate channel," Pescatoro said. "Our estimates are for around a 12-month lag. This means that the hikes that we have seen now are going to mostly start to take an effect on moderation of inflation by next year," he added. –NB, GMA News