Philippines Economy Positioned for Robust Growth in 2024 Despite Risks

The Philippines economy is expected to experience significant expansion in 2024, outperforming expectations and remaining one of the fastest-growing economies in the region. The International Monetary Fund (IMF), Asian Development Bank (ADB), and World Bank all project the Philippine economy to grow by at least 6% this year, with the government setting a target range of 6-7% economic growth.

National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan noted that the projections for growth factor in the impact of higher interest rates, which are expected to be felt this year. He expressed hope that April 2024 headline inflation will settle close to the March level of 3.7%, and that pressure from food prices will diminish in the second half of the year as the El Nino phenomenon wanes. However, Balisacan acknowledged that geopolitical tensions in the Middle East could put pressure on oil prices and inflation.

Key factors driving the Philippines' economic growth include a modest improvement in exports, particularly electronics, as worldwide demand for ICT products shows signs of recovery. The continued recovery in tourism, with international arrivals reaching 61% of 2019 levels, robust remittances from overseas Filipinos supporting private consumption, and public investment through the government's 'Build Better More' infrastructure program are also contributing to the positive outlook.

Despite the optimistic projections, the economy faces some risks, including elevated interest rates and high inflation, which are expected to slow private consumption and investment. Potential disruptions to agricultural production due to weather conditions and high fertilizer prices, as well as cooling relations with China that could affect financing for some infrastructure projects, are additional concerns.

Why this matters: The Philippines' strong economic performance amid global challenges highlights its resilience and potential as a leading economy in the region. Sustaining this growth trajectory will be crucial for lifting millions out of poverty and promoting inclusive development in the country.

The Bangko Sentral ng Pilipinas (BSP) and other emerging market central banks are expected to be more cautious about cutting borrowing costs this year due to external risks, such as rising commodity prices, particularly oil, which could add inflationary pressure. The BSP has kept its benchmark rate steady at a near 17-year high of 6.5% and may delay rate cuts if risks to inflation persist. "The BSP believes inflation could quicken to above the target range over the next two quarters," according to DBS Bank, which has revised its inflation forecast for the Philippines this year to 3.7% from 3.3% previously.

Key Takeaways

• Philippines economy expected to grow 6-7% in 2024, outpacing regional peers.
• Growth driven by exports, tourism recovery, remittances, and infrastructure investment.
• Risks include high inflation, interest rates, and potential disruptions to agriculture.
• Bangko Sentral ng Pilipinas may delay rate cuts due to inflation concerns.
• Sustained growth crucial for poverty reduction and inclusive development in the country.