THE impact of high inflation remains a key concern for the Philippine economy, but growth overall is expected to remain robust, the Asean+3 Macroeconomic Research Office (AMRO) said on Monday.

In a statement, AMRO said the country would likely grow by 5.6 percent this year, down from the 5.9 percent previously forecast and below the government’s target of 6.0 to 7.0 percent.

The outlook for next year was also trimmed to 6.3 percent from 6.5 percent, also below the official 6.5- to 8.0-percent goal for 2024-2028.

“The projected moderation in 2023 is due to high base effects and weaker external demand, while the upturn in 2024 is based on an expected recovery in external demand,” AMRO said.

Inflation was forecast to average 6.0 percent this year, up from 5.8 percent in 2022, and then moderate to 3.6 percent in 2024, within the Bangko Sentral ng Pilipinas’ 2.0- to 4.0-percent target.

High core inflation, AMRO said, “reflects elevated inflationary pressure due to a positive output gap and the second-round effects from increases in the minimum wages and persistently high inflation expectations.”

Inflation will be a key concern for the short term, it said, and the outlook for growth will likely also be weighed down by a slowdown in major trading patterns, global financial market volatility, and tighter financial conditions.

“Over the medium to long term, the country’s growth potential faces several challenges, including the scarring effects of the pandemic, a slower pace of infrastructure development, heightened geopolitical risks, and economic losses from extreme weather events,” AMRO also said.

It noted efforts to address inflation, including interest rate hikes totaling 450 basis points and an “all-of-government approach,” including the provision of targeted fuel and cash subsidies to particularly vulnerable sectors.

Fiscal policy, AMRO said, should strike a balance between restoring fiscal buffers and supporting sustainable growth, while the commitment to fiscal consolidation should come with rules and disciplines.

“With regard to the financial system, the authorities should continue to improve the liquidity management framework, develop the bond and repo markets, expand financial inclusion, safeguard financial stability, and enhance financial resilience and inclusion,” it added.

Regulators will also have to closely

coordinate with regard to assessing, monitoring, and managing financial stability

risks that might arise from non-financial companies.

“In the long term, the Philippine economic growth potential could be bolstered by a comprehensive strategy,” AMRO said.

“To overcome the scarring effects of the

pandemic and help the workforce embrace a more technology-driven economy, upgrading and upskilling is crucial, it added.

“Meanwhile, policies and measures to attract investments, particularly foreign investments, and promote exports of both

goods and services are the underpinnings of long-term economic development. Infrastructure investment, digitalization, and development of a green economy can help strengthen the country’s competitiveness.”