• FUELED BY FISCAL SPENDING

    IMF raises 2017 PH growth outlook to 6.8%

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    The International Monetary Fund (IMF) has raised its Philippine growth forecast for 2017 to 6.8 percent, affirming the optimism among private financial institutions that the economy is strong enough to achieve the government’s growth target for the year, largely on higher fiscal spending.

    “The Philippines is expected to maintain its strong GDP growth momentum, registered in 2016, into 2017 at a pace of about 6.8 percent, supported by a fiscal stimulus as the budget deficit widens towards the 3 percent of GDP target,” Shanaka Jayanath Peiris, IMF resident representative to the Philippines, told reporters by e-mail on Monday after the World Economic Outlook (WEO) Update report was released.

    The IMF forecast falls within the government’s 6.5 percent to 7.5 percent official target this year.

    Reflecting the pick-up in global growth and commodity prices, exports are also expected to recover, Peiris noted.
    “The medium-term growth outlook would depend on the more uncertain global economic outlook and the passage of the administration’s tax reform proposals that would be important to continue to raise public infrastructure investment and social spending to benefit from the demographic dividend,” he added.

    Assumptions

    The report is forecasting that global economic activity will pick up in 2017 and 2018, especially in emerging market and developing economies.

    It placed global growth at 3.4 percent this year and 3.6 percent in 2018. Advanced economies are now projected to grow by 1.9 percent in 2017 and 2.0 percent in 2018, with emerging market and developing economies to hit 4.5 percent this year before picking up at 4.8 percent in 2018.

    The latest projections are based on the assumption of a changing policy mix under a new administration in the United States and its global spillovers.

    “However, there is a wide dispersion of possible outcomes around the projections, given the uncertainty surrounding the policy stance of the incoming US administration and its global ramifications,” the report noted.

    “Staff now projects some near-term fiscal stimulus and a less gradual normalization of monetary policy,” it added.

    The projection is consistent with a steepening US yield curve, higher equity prices and a sizable appreciation of the US dollar since the November 8 election, the IMF pointed out.

    “This WEO forecast also incorporates a firming of oil prices following the agreement among OPEC members and several other major producers to limit supply,” it added.

    The Organization of Petroleum Exporting Countries (OPEC) and other major oil producers decided late last year to cap their production levels in order to end the steep declines in crude prices.

    Risks

    While the balance of risks is viewed as being on the downside, there are also upside risks to near- term growth, the report noted.

    “Specifically, global activity could accelerate more strongly if policy stimulus turns out to be larger than currently projected in the United States or China,” it said.

    The IMF noted the most notable negative risks are:

    • a shift toward inward-looking policy platforms and protectionism

    • a sharper than expected tightening in global financial conditions that could affect balance sheet weaknesses in parts of the euro area and in some emerging market economies

    • an increase in geopolitical tensions

    • a more severe slowdown in China

    Other forecasts

    The IMF growth outlook reflects the forecasts by other financial institutions, with the Washington-based World Bank providing the most optimistic numbers at 6.9 percent on the assumption that capital investment will remain the Philippine economy’s primary growth engine.

    United Kingdom-based investment bank Barclays expects the full-year 2017 growth to come in at 6.8 percent on account of an accommodative monetary policy stance by the central bank and the expansionary fiscal position of the national government.

    Debt watcher Fitch Ratings is forecasting the GDP to expand by of 6.6 percent this year, among the highest in Asia, on expectations of a strong domestic demand fueled by remittance inflows and revenue from the business process outsourcing sector. Fitch also finds the demography and capital investment contributing positively to growth despite a tepid global economy.

    London-based research consultancy Capital Economics said it remains sanguine about the short-term outlook on the country’s fundamentals and expects the GDP to continue growing at a decent pace of 6.5 percent.

    Moving forward, however, President Rodrigo Duterte’s increasingly erratic and crass leadership style tend to hold back long-run growth prospects, according to Capital Economics.

    The HSBC has also alerted the market that the Philippines faces a weakening current account and a widening trade deficit over the next two years as exports wane amid a slow global market recovery. It lowered its growth forecast to 6.5 percent from an earlier estimate of 6.8 percent.

    Debt watcher Moody’s has said ongoing reforms in the Philippines are likely to boost the country’s medium-term economic growth, but warned that domestic political risk—though low—is becoming more unpredictable and could disrupt long-term progress.

    This year, Moody’s is predicting the GDP at 6.5 percent with key domestic drivers expected staying solid.

    S&P has maintained its stable outlook on Philippine investment grade rating for now, with the possibility of an upgrade in the next two years nil. It may even cut the rating if the government reform agenda stalls.

    Its S&P sees the GDP growing at a respectable 6.4 percent, which reflects an upward adjustment from an earlier forecast of 6.3 percent.

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