MANILA - The International Monetary Fund (IMF) on Tuesday joined other multilateral lenders in downgrading the growth forecast for the Philippines this year amid elevated inflation and high interest rates.

In a press briefing, the IMF said it now expects the Philippine economy to grow by 5.3 percent this year down from its 6.2 percent projection in July.

• ADB downgrades PH economic growth outlook
• World bank sees PH growing 5.6 pct in 2023, among fastest in region

IMF Mission Head to the Philippines Jayanath Peiris also attributed the decision to the economic slowdown in the second quarter.

“Q2 was a negative surprise. We expected the economy to slow but Q2 was weaker than we all expected,” said Peiris.

He also cited government underspending and higher interest rates, which is likely to remain elevated for longer due to stubbornly high inflation.

The IMF sees the country’s inflation averaging close to 6 percent this year before easing close to 3.5 percent in 2024.

“Both fuel and food are raising headline inflation. We probably expect headline inflation and core inflation only to come within the target band in the first quarter of 2024,” he said.

“In that sense, we expect interest rates to be higher for longer. Interest rates probably need to be at this level until inflation becomes well within the target band,” added Peiris.

Meanwhile, the IMF is optimistic the Philippines’ growth slump already “bottomed out in the second quarter.” It sees the economy expanding by 6 percent in 2024.

“That’s basically predicated on higher public spending. The budget was approved (in the lower house) early so that creates the space for the government to ramp up spending early next year,” said Peiris.

Peiris added that while the global economy may weaken, the Philippines could still benefit from higher export demand.

“The global economy is somewhat weak next year but demand for Philippine exports— goods, electronics, and services, BPOs is expected to be strong partly because the US economy is performing quite well. And the Philippines is more exposed to (the) US than other parts of the world,” he said.

Finance Secretary Benjamin Diokno has said that Philippine economic managers may lower their economic growth target for the year during the next Development Budget Coordination Committee (DBCC) meeting on October 19.