The economy is likely to grow by a slower 6.5 percent this year after reaching a three-decade high of 7.3 percent in 2007, the Institute of International Finance Inc. (IIF) said in a recent report.
The IIF said the economy’s upward growth trend for the past three years is likely to stall this year amid skyrocketing oil prices and the slower growth in dollar remittances from Filipinos abroad.
“The three-year upward growth trend is set to stall this year as higher oil prices and slower growth in workers’ remittances deter consumption, while a weaker external demand hampers exports,” the IIF said.
At the same time, the IIF also said that the current high inflation and continuing strong growth in the economy removes the urgency for the central bank to ease policy.
The BSP expects the peso to retain an upward bias and rebound from the lows of the first quarter of 2008. This means that consumption is still likely to weaken given that the beneficiaries of OFWs are likely to cut their spending.
IIF also said that economic growth also faces threat from political uncertainties hounding the Arroyo administration.
It noted the scandal surrounding the cancelled $329-million National Broadband Network deal with ZTE Corp. of China that has implicated senior government officials, legislators and First Gentleman Jose Miguel Arroyo.
“While the details of the deal will eventually be revealed through legislative hearing and judicial proceeding, the revelation serves to reinforce lingering concern about public governance that continues to threaten to keep the economy from achieving its full potential,” the IIF said.
Furthermore, the IIF said that a change in policies is needed if the favorable near-term outlook is to be sustained over the medium term.
“Despite the progress in controlling the budget deficit, renewed weakness in revenue growth suggests that fiscal sustainability has yet to be achieved,” the IIF noted.
The government hopes to balance the budget this year even as some analysts are saying that the country would be better off posting a smaller deficit to have more funds to pump-prime the economy.
Last year, the deficit stood at P12.4 billion or significantly below the programmed deficit of P63 billion.