By Bianca Cuaresma
Despite its optimism on the local economy’s dynamics, the International Monetary Fund (IMF) has revised downward its Philippine growth outlook for this year, as the region’s sluggish performance and the global economy continued to drag the country’s potential growth going forward.
In an e-mail to reporters following the release of the World Economic Outlook (WEO) from the IMF in Washington, IMF Resident Representative to the Philippines Shanaka Jayanath Peiris said the international financial authority has revised its Philippine growth forecast for 2016 marginally downward, from 6.3 percent to 6.2 percent, to reflect the “challenging external environment.”
The IMF’s projected growth for 2016 is an acceleration from the actual growth rates of the country in the first three quarters of the year at 5.6 percent. While an improvement, it is still short of the government’s ambitious growth target for this year at 7 percent to 8 percent.
While the risks to the global outlook remain burdensome, Peiris said the Philippines’s growth forecast was only revised marginally downward, as the country is in a position of strength to ride out volatilities in the international economy.
In its WEO update, the IMF downgraded its 2016 forecast for the world output to 3.4 percent, down from 3.6 percent, projected in October last year.
The Association of Southeast Asian Nations-5, meanwhile, also got a growth downgrade to 4.8 percent from 4.9 percent. The diminished prospects were due to slower- than-expected pickup in global activity, especially in emerging markets (EMs) and developing economies.
The IMF said the picture for EMs is diverse but, in many cases, challenging, as the slowdown and rebalancing of the Chinese economy lower commodity prices, and strains in some large EM economies will continue to weigh on growth prospects in 2016 and 2017.
“The Philippines is relatively less exposed to China given the low trade and financial linkages, and stands to benefit from the lower commodity prices. However, a generalized slowdown in growth in the region, tighter external financial linkages conditions due to monetary-policy normalization in the US, and sudden spikes in global risk aversion are downside risks,” the IMF resident representative said.
The ample policy space of the country is also said to give cushion to the negative effects of a slowing global economy.
“The current policy configuration appears appropriate given the continued strong growth outlook and anticipated pickup in inflation toward the target range in 2016 and 2017,” Peiris said.
Policies, however, could be recalibrated if the downside risks were to materialize, Peiris added. Among the main sources of growth for 2016 for the Philippines remains to be a robust private domestic demand.
Some recovery in export growth and a pickup in public expenditure are seen to put on more fuel to the country’s economic growth for this year.
For 2015 the Philippine economy managed to post a 5.7-percent growth, lower than the IMF’s earlier forecast of 6 percent, due in part to the lower-than-expected outturns in the first three quarters of the year.
For 2017 IMF kept its growth projection of 6.5 percent.
“The medium-term economic outlook is based on an assumption of continued prudent macroeconomic policies and greater investments in infrastructure and human capital to benefit from the demographic dividend, supported by the low levels of public and private debt,” Peiris said.