IMF cuts Philippine growth forecasts anew

MANILA, Philippines - The International Monetary Fund (IMF) further lowered the economic growth forecasts for the Philippines this year and next year amid the country’s weaker than expected gross domestic product (GDP) growth in the first half due to the continued weak global demand.

IMF resident representative Shanaka Jayanath Peiris said the multilateral lender in its October 2015 World Economic Outlook (WEO) further slashed the country’s GDP growth forecast to six percent instead of 6.2 percent this year and to 6.3 percent instead of 6.5 percent next year.

Peiris explained the revision reflects the slightly weaker than anticipated second quarter GDP outturn and downward revision to trading partner country growth in the October 2015 WEO forecast.

The country’s GDP growth accelerated to 5.6 percent in the second quarter from the revised five percent in the first quarter on the back of improving government spending.

However, GDP growth slowed down to 5.3 percent in the first half from 6.4 percent in the same period last year.

Economic managers have penned a GDP growth of between seven and eight percent for the Philippines this year.

“The still relatively favorable growth forecast for 2015 compared to other countries in the region is underpinned by the pick up in government spending since June 2015 that is likely to provide a boost to GDP growth in the second half of the year,” he said.

For next year, Peiris said the take off of big-ticket public private partnership (PPP) projects together with the improving government spending as well as election-related spending would boost the economy.

“For 2016, growth is expected to accelerate to 6.3 percent reflecting the global economic recovery (and boost to exports) and the continued improvement in budget execution including election related spending and PPPs as the fiscal deficit reaches the two percent of GDP target,” he said.

Last July, the IMF lowered the country’s 2015  growth forecast to 6.2 percent from 6.7 percent.

The IMF releases its WEO report during April and in September or October of every year. An updated WEO is also released every January and July of each year.

According to Peiris, the risks to the outlook are mainly on the downside reflecting the state of the global economy.

“On the downside, a sharper than anticipated growth slowdown in China and other regional economies as well as a surge in global financial volatility, could lead to weaker exports and a tightening of domestic financing conditions, although the Philippines’ strong macroeconomic fundamentals and relatively low economic linkages to China should provide a cushion,” he said.

He added the continued weak budget execution could slow down needed improvements in public infrastructure.

The risk of a larger than budgeted deficit due to election spending, he said, is limited given the government’s strong policy commitment.

“Finally, there is a downside risk associated with severe El Niño conditions, leading to a poor harvest regionally and a rapid run-up in food prices. An upside risk is a stronger lift to demand from lower oil prices,” Peiris said.

The IMF lowered the country’s 2015 inflation forecast to 1.9 percent instead of 2.1 percent and 3.4 percent instead of 3.5 percent next year. The Bangko Sentral ng Pilipinas (BSP) has set an inflation target of two percent to four percent for 2015 and 2016.

“The inflation forecasts were lowered reflecting the decline in global commodity prices and still muted domestic food prices,” he said.