IMF maintains 5.7% Philippines growth forecast for 2019

MANILA, Philippines —The International Monetary Fund (IMF) has retained its economic growth forecast for the Philippines this year and expects it to pick up in 2020 on higher government spending as well as policy easing by the Bangko Sentral ng Pilipinas (BSP).

IMF mission chief Thomas Helbling said in a press conference that the country’s gross domestic product (GDP) growth would hit 5.7 percent this year, lower than the six to seven percent target set by the government’s economic managers.

This was unchanged from the GDP growth forecast in the IMF’s World Economic Outlook last October.

Latest data released by the Philippine Statistics Authority showed GDP growth accelerated to 6.2 percent in the third quarter after slumping to a four-year low of 5.5 percent in the second quarter due to soft global markets amid the US-China trade war, the delayed implementation of the 2019 national budget, and the tightening cycle by the BSP.

“After a soft patch in the first half of this year, the Philippines’ GDP growth is expected to strengthen in the remainder of 2019 and 2020, underpinned by government spending catching up with targets, and the recent monetary policy easing,” Helbling added.

For 2020, Helbling said the GDP expansion is seen picking up to 6.3 percent instead of 6.2 percent.

“The planned increase in government spending for 2020 and the recent monetary policy easing will help the economy move back to its growth potential and achieve the inflation target,” Helbling said.

According to Helbling, near-term downside risks to the outlook have increased, reflecting increased risks from

global trade tensions, shifts in global financial condition, and the recent monetary policy easing.

“The medium-term economic outlook remains favorable, especially if the strong structural reform momentum continues,” Helbling said.

He added the “near-term rebound in GDP growth could be weaker than expected because of global trade tensions and related policy uncertainty, a change in financial conditions and natural disasters.”

Upside risks, he said, include structural reform progress and infrastructure improvements that could boost confidence and growth.

The BSP’s Monetary Board has slashed interest rates by 75 basis points (bps) this year primarily due to easing inflation, partially unwinding the tightening cycle that saw benchmark rates rise by 175 bps last year to prevent inflation from spiraling out of control.

“The recent cuts in the BSP’s policy rate are appropriate for achieving the inflation target in the next one or two years, barring any unforeseen events. The Philippines has space for expansionary macroeconomic policy response should downside risks materialize,” Helbling said.

Inflation averaged 2.6 percent in the first 10 months of the year after easing to a 43-month low of 0.8 percent in October from 0.9 percent in September. The consumer price index shot up to 5.2 percent last year from 2.9 percent in 2017 and exceeded the BSP’s two percent to four percent target due to elevated oil and food prices as well as weak peso.

“Macroeconomic policies have reacted appropriately to the slowing growth and decreasing inflationary pressures,” he said.

Helbling said inflation is projected at 1.6 percent in end 2019 and three percent at end 2020, with current projections of global commodity prices and domestic policy trajectories.

“The inflationary pressures of 2018 have dissipated this year,” Helbling added.

He said bold implementation efforts are needed for strong structural reform momentum to lift medium-term growth and reduce poverty.