Growth within the Philippine economy is forecast to accelerate in 2024, yet may fall short of the government's target due to the impact of El Niño on food supply and the high inflation risk.

The country's economy is estimated to grow by 5.8% this year, a rise from 5.5% in 2023, according to Union Bank of the Philippines chief financial officer, Manuel Lozano.

Lozano was addressing a shareholder's query at Unionbank's annual shareholders' meeting last week. If achieved, the bank's projection would fall short of the tempered target set by the Marcos administration, which aims for a 6-7% growth this year.

For Unionbank, the primary threat to growth remains inflation, which is at risk of surpassing the state's 2-4% target again due to the ongoing dry spell causing significant damage to farms, Inquirer reports.

"We still remain quite hopeful, but really have to stay realistic about the economic outlook in 2024," Lozano said.

"Unfortunately, dry weather El Niño will hurt farming output and that may dampen the economic output. Overall, though, we expect things to improve and inflation to settle down within a healthy range by the end of this year," he added.

Persistent high inflation would likely compel the Bangko Sentral ng Pilipinas (BSP) to maintain its ultra-tight monetary policy settings for an extended period, as several analysts have noted. 

This could pose a significant hurdle to the government's goal of achieving a 6% growth.

The BSP has maintained its key rate at 6.5%, the tightest in nearly 17 years. BSP Governor Eli Remolona Jr. has acknowledged that the space for easing monetary policy has diminished. He suggested the possibility of a rate cut later in the first quarter of 2025 if the inflation situation deteriorates further.

For Unionbank, the economy can still receive a boost from consumption, which has demonstrated resilience despite tight financial conditions. This is due to improvements in the local labour market and the consistent support households receive from remittances.

"People spending more, and businesses investing again, jobs in factories and services money sent home from abroad, and hopefully better tourism should all help this growth," Lozano said.

"The government is also spending on public infra projects and there are big investments lined up in that area," he continued