MANILA, Philippines — The International Monetary Fund (IMF) expects the Philippine economy returning to its pre-pandemic growth level in 2024 after closing the output gap arising from the impact of the pandemic by next year.

IMF resident representative Ragnar Gudmundsson said in an email that the Philippines has shown signs of economic recovery from the global health crisis beginning in the second half of 2021.

Gudmundsson said the recovery momentum is expected to strengthen this year due to the weaker-than-expected impact of the Omicron wave.

This prompted the IMF to hike its gross domestic product (GDP) growth projection for the Philippines to 6.5 percent in its April 2022 World Economic Outlook from the original target of 6.3 percent, notwithstanding some adverse spillovers from the virus resurgence in trading partners and the Ukraine-Russia war.

Despite the upgrade, IMF’s projection is still lower than the seven to nine percent GDP growth target set by Philippine economic managers.

The Philippines exited the pandemic-induced recession with a GDP expansion of 5.7 percent last year, a reversal of the 9.6 percent contraction booked in 2020.

“The output gap is expected to close in 2023 and the medium-term economic growth is forecast to return to the pre-pandemic rate of 6.5 percent by 2024,” Gudmundsson said.

The output gap refers to the actual economic output of the Philippines during the pandemic versus the country’s maximum pre-pandemic potential.

Preliminary results of the COVID-19 Country Assessment Report for Southeast Asia of the Asian Development Bank showed the output gap of the Philippines stood at 16.4 percent in January from 16.1 percent in 2021.

This places the Philippines as the country with the biggest output gap in the region. In 2021, the country had the second largest gap after Myanmar’s 26.5 percent amid political unrest in the ASEAN neighbor.

Based on the latest GDP growth forecast, the Philippines is the fastest growing economy among ASEAN-5 member countries. Vietnam follows with six percent; Malaysia, 5.6 percent; Indonesia, 5.4 percent and Thailand, 3.3 percent.

For 2023, the multilateral lender sees Philippine GDP growth stabilizing at 6.3 percent.

Gudmundsson said the IMF expects inflation to accelerate to 4.3 percent this year before easing to 3.7 percent from 3.9 percent in 2021. The consumer price index continues to rise amid soaring global oil prices due to Russia’s invasion of Ukraine.

Last month, inflation hit the upper end of the two to four percent target range set by the Bangko Sentral ng Pilipinas (BSP), averaging four percent in March from three percent in February. This brought average inflation to 3.4 percent in the first quarter.

“The surge in commodity and food prices is projected to result in average headline inflation at 4.3 percent in 2022, but end-year inflation should come down to four percent, remaining within the BSP’s target band of two to four percent,” Gudmundsson said.

BSP Governor Benjamin Diokno said the Monetary Board is likely to keep a loose and expansionary monetary policy stance in the first half by keeping the benchmark interest rate at an all-time low of two percent.

Diokno earlier said inflation is likely to remain elevated and settle above the government’s two to four percent target band in the second half due to higher global oil and non-oil prices before easing in the first quarter of next year.

“While the BSP’s stance has been accommodative thus far in 2022, its decisions will remain data-driven and may call for some tightening during the second half of the year,” Gudmundsson said.