Phl to outpace SEA growth – IMF

MANILA, Philippines - The Philippines is expected to grow faster than its Southeast Asian neighbors this year, following above-target growth in 2012, as strong consumption and investment persist amid an expected pick-up in global growth.

Growth could hit six percent this year, the International Monetary Fund (IMF) said. This is slower than the 6.5 percent projected for last year, but faster than the October forecast of 4.8 percent. For 2014, growth could ease to 5.5 percent.

The new growth figures are stronger than the aggregate growth estimate for ASEAN-5, which is only seen to expand 5.5 percent in 2013 and 5.7 percent in 2014. ASEAN-5 is composed of the Philippines, Malaysia, Indonesia, Thailand and Vietnam.

Compared to government targets, the 2013 outlook meets the low-end of the six- to seven-percent goal.

 â€œThis growth resilience and more favorable outlook is both a testament to the Philippines’ improved macroeconomic fundamentals, policy reforms and a reflection of the exceptional goal setting,” said IMF mission chief Rachel van Elkan in a briefing yesterday.

 â€œThe focus on good governance has buoyed confidence and is supportive of more-inclusive growth,” she added. The IMF just concluded its Article IV consultation with Philippine authorities that included an examination of government policies.

As of the third quarter of last year, economic growth hit 6.5 percent, way above the Aquino administration’s five- to six-percent goal that year. Official full-year growth data will be released Jan. 31.

For this year, Van Elkan said domestic demand will be supported by continued government spending, which will benefit from more revenues from the excise tax reform. Low inflation, she said, will also be supportive of consumer purchasing power.

Inflation is expected to stay at “the low-end of the target band” of three- to five-percent this year and the next, she explained.

Risks remain however, Van Elkan said, with exports still suffering from weak demand from developed markets in the Europe and the United States, which are reeling from debt crises.

A similar scenario is expected for the rest of emerging market economies, the latest IMF World Economic Update said. These markets are seen to grow 5.5 percent this year, slightly down from 5.6 percent forecast last October. Growth could accelerate to 5.9 percent in 2014.

Of these countries, developing Asia, which groups China, India and the ASEAN-5, will likely expand by 7.1 percent, picking up pace to 7.5 percent next year, IMF said. The 2013 projection was 0.1 percentage-points slower than the October figure.

Emerging economies put in place “supportive policies”— such as central banks easing policy rates— last year to cushion the impact of the financial crises abroad. This however, the IMF said, has already “diminished” in some territories.

 â€œWeakness in advanced economies will weigh on external demand, as well as on the terms of trade of commodity exporters, given the assumption of lower commodity prices in 2013,” it added.

As for the Philippines, Van Elkan said the challenges will also include capital inflows and the threat they may bring.

 â€œLarge, stable foreign earnings over the past decade as well as potentially volatile capital flows are placing upward pressure on the exchange rate. Low interest rates are fuelling prices of financial assets and pushing resources to non-tradable sectors,” Van Elkan said.

 â€œWe commend the BSP for utilizing a variety of instruments to help insulate domestic monetary conditions from the abundant liquidity abroad,” she added.