The International Monetary Fund has projected the Philippines' gross domestic product to grow by 6.5 percent in 2022 but to slow to 5 percent in 2023 as the confluence of global shocks weighs on the economy in the coming months.

An IMF team led by Cheng Hoon Lim said that "inflation is expected to rise to 5.3 percent in 2022, then to decline modestly in 2023, supported by a moderation in commodity prices, and converge to the mid-point of the band in 2024, as tighter monetary policy keeps inflation expectations anchored."

"The outlook is subject to significant downside risks, where policy tradeoffs between output and inflation would become more acute," she added.

Meanwhile, the downside risks include a surge in Covid-19 cases from more severe variants, a more abrupt or larger-than-expected tightening of global financial conditions, a deepening of the global slowdown, persistently high domestic inflation, and natural disasters, Lim said.

On the upside, an end to Russia's war in Ukraine and the taming of inflation both domestically and globally could lay the foundations for stronger growth than currently envisaged.

"Looking ahead, sustaining the economy recovery will require a focus on policies to address inflationary risks, increase fiscal and financial resilience to adverse shocks, and successful implementation of reforms to mitigate pandemic scarring and raise productivity growth," Lim added.

To address this, the IMF staff made the following policy recommendations:  Prompt action by the BSP to tackle inflation. Continued near-term tightening of monetary policy to keep inflation expectations anchored. Reduction of headline inflation securely within the BSP's target range of 2 percent to 4 percent.

Clear communication about inflation and the BSP's forward-looking policy intentions can also help reduce uncertainty and improve policy transmission, said the IMF.

Moreover, the banking system has shown resilience, with profitability returning to pre-pandemic levels while non-performing loans have increased only modestly, it noted.