INFRASTRUCTURE gaps and a weaker external sector recovery could hamper Philippine economic growth, the Asean+3 Macroeconomic Research Office (AMRO) said on Tuesday as it revised its forecasts for the country.

AMRO trimmed its 2024 and 2025 growth outlooks to 6.1 percent and 6.3 percent, respectively, from 6.3 percent and 6.5 percent previously. The revision for 2024 falls within the government's downwardly revised 6.0- to 7.0-percent target while that for next year is short of the 6.5- to 7.5-percent goal.

Growth moderated to 5.6 percent last year from 7.6 percent in 2022, missing the 6.0- to 7.0-percent target.

AMRO said that the change to the 2024 forecast was due to a weaker-than-expected external recovery, and chief economist Hoe Ee Khor said the economy was being held back by the lack of critical infrastructure.

"I think that's one of the weaknesses in the Philippine economy, the infrastructure gap, and I think the government is very conscious of that and is trying to fill the gap," he told reporters.

"Unfortunately, I think fiscal space has been used up to some extent during the pandemic, but our assessment is that ... there's still a moderate business space in the Philippines...," he added.

More foreign investments are also needed to complement domestic savings, Khor said.

He also said that the country's growth remained "pretty robust and will pick up next year" albeit on the low side.

"We think the policy measures by the government will continue to attract more investment," Khor said, adding that improvement on the infrastructure side would help lift the growth potential.

"We will look at the data closely, and we may revise it up in the second half if the data show that the economy becomes stronger."

AMRO also trimmed its inflation outlook for this year to 3.3 percent from 3.6 percent but raised next year's forecast to 3.1 percent from 2.9 percent.

While inflation has already edged down and remains within the 2.0- to 4.0-percent target, Khor said that it was still among the highest in the region.

Consumer price growth snapped a four-month rise and slowed to 3.7 percent last month.

Still, Khor said that "disinflation seems to have a bigger momentum and inflation has come off faster than expected."

This has given the Bangko Sentral ng Pilipinas "a lot of flexibility" in deciding when to begin lowering interest rates.

"Central banks are holding back because the exchange rate is pretty weak, but they are all weakening together mostly, so there is no issue of competitiveness, and the pass-through from lower exchange rates into higher prices is also very low," Khor noted.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022 as inflation started surging.

BANGKO Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. Photo fro BSP

Central bank Governor Eli Remolona Jr. has said that an easing could start in June, ahead of the US Federal Reserve (Fed) that is currently seen cutting rates in September.

As this developed, the International Monetary Fund (IMF) retained its forecasts for Philippine economic growth in the latest update to its World Economic Outlook report.

The country is expected to post within-target growth of 6.0 percent this year and improve to 6.2 percent in 2025. The expansion will be second to India's 7.0 percent, the IMF said.

As for the direction of monetary policy, it said that challenges to disinflation could force central banks, including the Fed, to keep interest rates higher for longer.

"That would put overall growth at risk, with increased upward pressure on the dollar and harmful spillovers to emerging and developing economies," IMF chief economist Pierre-Olivier Gourinchas said in the report.

Emerging markets and developing economies, the IMF said, will need to manage currency risks and capital flow volatility.

"Given that economic fundamentals remain the main factor in dollar appreciation, the appropriate response is to allow the exchange rate to adjust, while using monetary policy to keep inflation close to target," it added.

Foreign reserves should also be managed cautiously to address potential future outflows and macroprudential policies should aim to reduce risks associated with significant exposure to foreign currency-denominated debt.

While delayed easing could harm the potential output of most economies, Gourinchas said that Asia's emerging markets would continue to drive the global economy.

"The forecast for growth in emerging markets and developing economies is revised upward; the projected increase is powered by stronger activity in Asia," the IMF said.

Growth is expected to expand by 4.3 percent this year and in 2025, higher than the previous estimates of 4.2 percent.

"Emerging market economies have been resilient overall, although the performance of emerging market currencies has varied some," the IMF noted.

"Policies that promote multilateralism and a faster implementation of macrostructural reforms could boost supply gains, productivity and growth, with positive spillovers worldwide."