IMF lowers Philippine growth forecast to 5.7% this year

MANILA, Philippines – The International Monetary Fund (IMF) has lowered economic growth projections for the Philippines but still expects the country to be one of the fastest growing economies in the region despite the slowdown in China and the normalization of interest rates in the US.

IMF resident representative Shanaka Jayanath Peiris said the multilateral lender lowered the country’s growth forecast to 5.7 percent instead of six percent for 2015 and to 6.2 percent instead of 6.3 percent for 2016 based on its January 2016 World Economic Outlook (WEO).

“The growth estimate for 2015 was revised down to 5.7 percent from six percent, reflecting growth outturns to the third quarter and weaker global growth performance,” Peiris said.

The country’s gross domestic product (GDP) growth accelerated to six percent in the third quarter from the revised 5.8 percent in the second quarter of last year due to robust domestic demand and improving government spending.

However, the GDP expansion reached 5.6 percent in the first nine months of last year, way below the seven to eight percent penned by economic managers.

Peiris said GDP growth projection for 2017 was retained at 6.5 percent.

“Despite the weaker global economic outlook, Philippine growth forecast for 2016 was only marginally lowered from 6.3 to 6.2 percent to reflect the more challenging external environment. The growth projection for 2017 remains unchanged from the October WEO at 6.5 percent,” he said.

Peiris said this year’s growth would be fuelled by strong domestic demand, recovering exports, and improving government spending with the launch of more public private partnership (PPP) projects.

“We expect the Philippine economy to continue growing strongly, supported by a robust private domestic demand and some recovery in export growth after the dismal global trade performance in 2015. Public sector expenditure is also expected to contribute strongly to growth as budget execution continues to improve and the construction phase of a number of PPPs kick in,” Peiris said.

Peiris said the medium term economic outlook for the Philippines was based on an assumption of continued prudent macroeconomic policies and greater investments in infrastructure and human capital.

Peiris said the risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy including a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the US.

“The Philippines is relatively less exposed to China given the low trade and financial linkages and stands to benefit from the lower commodity prices,” he added.

Downside, risks, he said, included a generalized slowdown in growth in the region, tighter external financial conditions due to monetary policy normalization in the US, and sudden spikes in global risk aversion are downside risks.

“The Philippines is well positioned to deal with external shocks because of its strong fundamentals and ample policy space,” Peiris said.

The Bangko Sentral ng Pilipinas (BSP) has kept interest rates unchanged since October 2014 due to the sustained economic growth and the benign inflation environment.

Inflation eased to 1.4 percent last year from 4.1 percent in 2014 due to stable food prices and cheaper utility rates brought about by the continued decline in oil prices.