The International Monetary Fund (IMF) has again cut its growth forecasts for the Philippines, citing latest developments, but said the outlook for the economy remained “one of the strongest in the region.”
“The growth estimate for 2015 was revised down to 5.7 percent from 6 percent, reflecting growth outturns to the third quarter and weaker global growth performance,” IMF Resident Representative Shanaka Jayanath Peiris told reporters in an e-mail on Tuesday.
The multilateral’s 2015 forecast is lower than the 6.1 percent gross domestic product (GDP) growth recorded in 2014 and is also below the government’s 7-percent to 8-percent target.
Growth picked up to 6 percent in the third quarter, bringing the year-to-date expansion to 5.6 percent. The third quarter result was below some analysts’ forecasts but was nevertheless welcomed by the government, which said it was gaining ground on the underspending that had weighed on the first half.
Still, economic managers have conceded that the 2015 goal will be missed, saying growth will likely be limited to around 6 percent. Fourth quarter and full-year GDP results will be released by the end of this month.
The IMF last trimmed its Philippine growth forecast in October, before the release of the third quarter GDP results, from the 6.2 percent announced in July.
Also adjusted anew was the forecast for 2016, with the multilateral trimming its estimate to 6.2 percent from 6.3 percent. In July, the figure was a higher 6.5 percent.
“Despite the weaker global economic outlook, the Philippines growth forecast for 2016 was only marginally lowered from 6.3 percent to 6.2 percent to reflect the more challenging external environment,” Peiris said.
Going forward, the IMF retained its 2017 projection at 6.5 percent.
“The Philippines growth outlook remains one of the strongest in the region . . . 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,” Peiris said.
Public sector expenditure, he added, is also expected to contribute strongly as budget execution continues to improve and the construction phase of a number of public-private partnership projects kicks in.
Peiris said the IMF’s medium-term economic outlook for the Philippines was based on the assumption of continued prudent macroeconomic policies and greater investments in infrastructure and human capital to benefit from the demographic dividend, supported by low levels of public and private debt.
The IMF’s latest estimates were contained in the World Economic Outlook (WEO) Update published on Tuesday. In the report, global growth was estimated to have hit 3.1 percent in 2015 and projected to pick up to 3.4 percent in 2016 and 3.6 percent in 2017.
The IMF said its forecasts for global growth were revised downward by 0.2 percentage point for both 2016 and 2017, “reflecting to a substantial degree, but not exclusively, a weaker pickup in emerging economies than was forecast in October [WEO].”
“Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices and the gradual exit from extraordinarily accommodative monetary conditions in the United States,” Peiris said.
He said the Philippines was relatively less exposed to China given low trade and financial links and stood to benefit from lower commodity prices.
Downside risks could come from 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.
Still, Peiris said “the Philippines is well positioned to deal with external shocks because of its strong fundamentals and ample policy space.”
He said the country’s current policy configuration appeared appropriate given the continued strong growth outlook and an anticipated pick up in inflation toward the 2-percent to 4-percent target range in 2016 and 2017.
Policies, however, could be recalibrated if the downside risks were to materialize, the IMF official suggested.