THE Philippine economy could experience a downturn with the full impact of monetary policy tightening expected to materialize this year, an economist said.
Pantheon Macroeconomics' Miguel Chanco said gross domestic product (GDP) growth could slow to 4.8 percent in 2024, down from last year's 5.6 percent and marking the lowest full-year result since 2011.
"Crucially, fiscal policy is still in no real position to provide any meaningful support, as the consolidation of the budget blowout from the pandemic years is far from complete," he added.
Chanco also noted that if key interest rates remained high, declining inflation would actually result in an increase in the benchmark rate in real terms.
The Bangko Sentral ng Pilipinas' (BSP) policymaking Monetary Board, which on Thursday paused for a third straight meeting, noted inflation risks, while diminished, remained tilted toward the upside.
The BSP's benchmark rate currently stands at a 16-year high of 6.5 percent following 450 basis points of rate hikes beginning May 2022 as inflation started surging.
Last year's 5.6-percent GDP growth, while below target, still surpassed expectations and has also been cited as robust enough to allow for further tightening if such is needed.
Chanco still expects the BSP to begin cutting rates by May at the earliest for a total of 100 basis points this year.
Nicholas Antonio Mapa, senior economist at ING Manila Bank, said the central bank would remain cautious in the short term and only start easing once the US Federal Reserve starts cutting rates.
"However, with the risk-adjusted inflation forecast already within target, we believe the BSP now has scope to discuss potential easing possibly as early as mid-year," Mapa said.
The Monetary Board on Thursday also trimmed its risk-adjusted inflation forecast for 2024 to 3.9 percent from 4.2 percent. That for 2025 was raised to 3.5 percent from 3.4 percent.
The baseline forecast for this year, meanwhile, was trimmed to 3.6 percent from 3.7 percent, while the 2025 forecast was kept at 3.2 percent.
"Should headline and core inflation continue to slide and barring any potential supply side shocks, we believe that the BSP can adjust policy rates ASAF (as soon as the Fed does)," Mapa said.
"Given our expectation that the Federal Reserve could cut policy rates at their May or June meeting, we expect that BSP could consider cutting its policy rate as early as the 27 June policy meeting," he added.
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