The International Monetary Fund (IMF) has issued an encouraging assessment of the Philippine economy, affirming a stable growth trajectory and indicating that the Bangko Sentral ng Pilipinas (BSP) may ease interest rates further due to a decline in inflation rates.

According to a statement released on May 22, following a week of consultations in Manila, the IMF maintained its forecast for the country's gross domestic product (GDP) to grow by 5.5 percent in 2025, with a modest increase to 5.8 percent in 2026.

If these projections materialize, 2024 may register the slowest GDP growth rate in five years, a marked contrast to the significant downturn experienced during the COVID-19 pandemic, which led to the worst postwar recession in 2020. The growth expectations for 2024 fall short of the Philippine government's more ambitious target range of six to eight percent.

Elif Arbatli Saxegaard, who led the IMF mission, noted the Philippine economy's resilience in the face of global economic uncertainties, stating, "The Philippine economy remains robust despite external challenges." Information presented highlighted that the impact of recently announced tariffs from the United States would likely have a limited direct effect on the Philippine economy, although increased global policy uncertainty and slower growth in major economies may pose risks.

Headline inflation in the Philippines dropped to 1.4 percent year-on-year in April, attributed to prior monetary tightening measures and government strategies aimed at reducing food prices, particularly through lowered tariffs on rice.

Core inflation also showed a downward trend, reducing to 2.2 percent.

The IMF characterized inflation expectations as "well-anchored" and indicated that these developments provide room for the BSP to consider further reductions in the policy rate.

In April, the BSP responded to the declining inflation by cutting the key interest rate by 25 basis points, bringing it to 5.5 percent.

Governor Eli M. Remolona Jr. has suggested the likelihood of two additional rate cuts by the end of the year, both expected to be 25 basis points.

While the positive outlook is tempered by potential challenges, including risks stemming from external factors and the weaker than anticipated performance in the first quarter (with GDP growth at 5.4 percent), the IMF projected a narrowing of the current account deficit from 3.8 percent of GDP in 2024 to 3.4 percent in 2025.

Meanwhile, the BSP continues to pursue policies aimed at improving revenue and expenditure efficiency in alignment with the government's medium-term consolidation plan.

This includes a targeted reduction in the fiscal deficit from 6.1 percent of GDP in 2023 to 5.7 percent in 2024, as stated by the IMF.

In parallel, ongoing reforms in financial markets are expected to enhance monetary policy transmission, as the Philippines navigates through reforms such as the establishment of an interest rate swap market and improving government bond issuance.

Despite these advancements, the IMF cautioned about the need for vigilance regarding consumer credit expansion and exposure to the real estate sector, while expressing long-term confidence in the Philippines' economic potential, highlighting its demographic advantages and resource availability.

In related developments, the BSP has indicated that it is considering two possible rate cuts during its meetings.

Governor Remolona emphasized that adjustments would be calibrated in light of existing uncertainties, particularly influenced by recent political events in the United States and potential implications for market conditions.

Domestically, the logistics sector in the Philippines experienced significant growth of 11 percent in the first quarter, with cargo traffic reaching 65.77 million metric tons, demonstrating the industry's resilience in the face of worldwide trade uncertainties.

The Philippine Ports Authority reported a rise in container throughput and stable earnings stretching the government's aim of sustained contributions from state-run entities.

Despite fluctuations in passenger traffic, with a 2 percent decline in the first quarter, the overall outlook for the logistics sector remains optimistic as the country adapts to changes in global trade dynamics.