PH growth to stay unchanged at 6.7%
IMF keeps 2018 forecast, trims 2019 estimate
Philippine economic growth will likely hit 6.7 percent this year and the next — unchanged from 2017 — on the back of strong consumption and investments, the International Monetary Fund (IMF) said following the conclusion of an annual validation of the country’s prospects.
“The Philippine economy continues to grow strongly,” the Washington-based multilateral lender said in a statement on Wednesday. “However, near-term risks have increased, stemming from rising inflation and a changing external environment that poses great uncertainty
The 6.7-percent forecast for 2018 is unchanged from April when the IMF released its World Economic Outlook (WEO). The 2019 estimate, however, has been cut from the previous projection of 6.8 percent. The April WEO had also forecast 7.0 percent growth for 2023 and there was no word if this had been retained or revised.
“The medium term economic outlook remains favorable but short term risks have risen. Real GDP growth is projected at just under seven percent over the medium term,” IMF mission chief Luis Breuer said in a briefing at the Bangko Sentral ng Pilipinas.
In the statement, the IMF noted that rising crude prices, external pressures on the peso, one-off effects from higher excise taxes and domestic demand pressures had led to a surge in inflation, which hit a five-year high of 5.2 percent in June and a year-to-date average (4.3 percent) above the BSP’s 2.0-4.0 percent target.
The current account deficit, meanwhile, is expected to hit 1.5 percent of gross domestic product due to increased capital goods and raw materials imports, while foreign direct investments — which hit a record $10 billion last year — “is expected to moderate somewhat this year”.
The peso has also fallen by some 7 percent against the dollar, the IMF pointed out, but gross international reserves of $77.7 billion “remain more than adequate”.
Inflation was forecast to gradually fall back to the target level next year and “move toward 3 percent over time”.
The current account deficit is also expected to “remain manageable, financed largely by foreign direct investment”.
“Downside risks stem mainly from rising inflation, continued rapid credit growth, higher US interest rates and US dollar, volatile capital flows and trade tensions,” the IMF said,
Discussions with Philippine officials, the multilateral lender said, focused on the need to prop up growth and macroeconomic stability via policy tweaks and maintaining a healthy external position.
This would require:
• Keeping the deficit broadly unchanged at around 2.4 percent in 2018 and 2019 to support efforts to contain inflation.
• Further tightening monetary policy if warranted by domestic and external developments. Two recent BSP rate hikes were welcomed along with an “announced readiness to take further action”.
• Maintaining exchange rate flexibility.
• Pursuing measures to safeguard financial stability as credit growth accelerates and corporate debts rise.
• Sustaining and deepening the reform program, including changes to the BSP charter, streamlining tax incentives, opening new sectors of the economy, improving the business environment, and modernizing bank secrecy and the anti-money laundering/terrorist financing frameworks.
“The Philippine has been one of the region’s strong economic performers over the past year, reaping the fruits of prudent policies and critical reforms,” the IMF said.
“The team welcomes the authorities’ strategy of maintaining policy continuity while adapting to emerging challenges and taking advantage of the strong economy to implement reforms to improve inclusive growth and job creation,” it added.
“This strategy has served the Philippines well”.
FROM A REPORT BY ED VELASCO
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