The International Monetary Fund (IMF) has toned down its growth outlook for the Philippines for this year, though it stressed the growth picture for the country remains fairly strong compared with other countries in the Association of Southeast Asian Nations (Asean) and in other parts of the world.
In a press briefing on Tuesday, the IMF said the country’s gross domestic product (GDP) may grow 6.2 percent this year, below the government’s full-year growth target for 2014 of between 6.5 percent and 7.5 percent.
The latest forecast is also lower than the 6.5 percent increase in GDP the IMF projected in the concluding statement on its 2014 Article IV Consultation Mission to the Philippines in March, and in its World Economic Outlook released in April.
According to IMF Resident Representative to the Philippines Shanaka Jayanath Peiris, the IMF’s slightly lower outlook was mainly because of the slowdown seen in the first quarter to 5.7 percent from 6.5 percent in the last quarter of 2013.
Only a temporary setback
Despite this, Peiris noted that the IMF still expects the Philippines to recover as fiscal spending and exports will rebound in the second half of the year.
“In the Philippines, growth outlook is predicated on the fiscal spending—government spen–ding, especially on the [Typhoon Yolanda] reconstruction going ahead as expected in the budget. We are expecting a recovery in spending as well,” he said.
Peiris noted that while government spending slowed down in the second quarter, particularly in the months of April and May, it might be offset by sustained spending in the third quarter of 2014.
“We are basically assuming the government’s spending target goes according to plan,” he said, referring to the P266 billion budget deficit target of the government this year.
The IMF is also expecting a rebound in the export performance of the country in the second half of the year as global economic prospects may improve.
“The Philippines is considered to be among the more resilient group of emerging markets,” Peiris said.
In the latest update of World Economic Outlook report, IMF said emerging market and developing economies growth is now projected to decrease to 4.6 percent in 2014 and then strengthen to 5.2 percent in 2015. The forecast for the Asean-5 (Indonesia, Malaysia, Thailand, the Philippines, and Vietnam) has been revised downward from 4.9 percent to 4.6 percent for 2014, but raised slightly from 5.4 percent to 5.6 percent in 2015.
Global risks remain
The report said downside risks caused by geopolitical tensions, oil price spike and risk of a renewed rise in longer-term interest in global financial markets remain.
“Emerging market economies—particularly those with domestic weaknesses and external vulnerabilities—may face a sudden worsening of financial conditions and a reversal in capital flows in the event of a shift in financial market sentiment,” it stated.
“Many of these economies also face the risk that the factors underpinning the weakening of growth will persist into the medium term,” the report added.
As a result, the IMF said its global growth projection for 2014 has been marked down by 0.3 percent to 3.4 percent, reflecting both the legacy of the weak first quarter, particularly in the United States, and a less optimistic outlook for several emerging markets.
“With somewhat stronger growth expected in some advanced economies next year, the global growth projection for 2015 remains at 4 percent,” it said.