Phl economy to rise on domestic demand

MANILA, Philippines - The Philippine economy should grow modestly this year on domestic demand, despite the risks to the broader global economy from Europe’s sovereign debt crisis, the International Monetary (IMF) said yesterday.

In a video conference from Washington, IMF mission chief for the Philippines Vivek Arora said the country would likely regain its potential growth rate of about five percent starting next year after slackening last year due to weak global trade.

Arora said economic growth could recover to about 4.2 percent this year, up from 3.7 percent in 2011.

 “Overall we expect growth for 2012 to rise from 3.7 percent last year to 4.2 percent this year because of the pickup of domestic demand and then going forward we expect that the Philippines will regain its potential growth rate of about five percent over the medium term,” Arora stressed.

He pointed out that the fiscal stimulus as well as the monetary policy stance of the Bangko Sentral ng Pilipinas (BSP), and strong remittances from overseas Filipino workers (OFWs) would boost domestic demand.

“We expect the fiscal stimulus that has been put in place, the monetary accommodation that is underway, and robust remittances will allow domestic demand to pick up in 2012 and the pickup in domestic demand will offset downtrend from net exports,” he explained.

The IMF’s robust economic growth outlook is within the growth target of five percent to six percent set by the Cabinet-level Development Budget Coordination Committee (DBCC).

 “The growth outlook for the Philippines is a generally positive outlook in the sense that growth slowed down in 2011 because of fiscal contraction and because of headwinds,” Arora said.

In its annual review of the Philippine economy, the IMF said domestic demand would support growth this year and offset sluggish external demand.

The multilateral lender said public and private demand would strengthen this year reflecting a recovery in government spending, the start of long-awaited public-private

partnerships (PPPs), supportive monetary conditions, and robust remittances.

IMF pointed out that the country’s export sector would continue to make a negative contribution to growth this year due to weak external demand. 

 “With external demand still weak, net exports will continue to make a negative contribution to growth in 2012, although the drag should be smaller than in 2011 as the unwinding of inventories reduces import growth,” it added.

According to the IMF, the country’s inflation would fall within the BSP target of three percent to five percent this year amid soaring oil prices due to the tensions in Middle East and North African (MENA) states.

 “Inflation should move toward the mid–point of the BSP’s target range in the absence of food and fuel price shocks, as the negative output gap holds down price pressures,” IMF said.

Over the medium term, IMF said growth is projected to recover to its potential rate of around five percent but slightly lower than the DBCC target of seven percent to eight percent over the medium term.

It said measures would be needed in particular to further strengthen the investment environment and public infrastructure, as well as job creation and productivity.