IMF cuts Philippines GDP forecast to 6.6%

MANILA, Philippines - The International Monetary Fund (IMF) slashed anew its economic growth forecasts for the Philippines after weak private consumption pulled down gross domestic product (GDP) expansion in the first quarter.

Luis Breuer, head of the 2017 Article Mission to the Philippines, said the IMF has lowerd to 6.6 percent its 2017 economic growth target for the Philippines from the original forecast of 6.8 percent and to 6.8 percent instead of 6.9 percent for 2018.

“Overall, we are very optimistic about growth in the Philippines. Our growth projection was revised a little bit from 6.8 to 6.6 percent. The reason for that was basically math,” he said.

A temporary deceleration in public spending and strong base effects following the election last year pulled down the GDP growth to 6.4 percent in the first quarter from 6.6 percent in the fourth quarter of last year.

“Growth in the first quarter was lower than anticipated and as you know, growth is measured relative to the same period last year when during electoral cycle there was higher spending which led to temporarily higher growth. When you combine these factors, growth in the first quarter was a bit slower than expected,” Breuer said.

Election related spending boosted the GDP growth to 6.9 percent last year from 5.9 percent in 2015, within the higher end of the government target of six to seven percent.

Breuer said the economic performance of the Philippines continues to be very strong, featuring robust growth combined with low inflation.

He said the government should pursue the comprehensive tax reform program, provide insurance against the volatile international finance conditions, and protect the confidence and trust that the private sector both domestic and international have on the conduct of economic policies.

Inflation climbed to 1.8 percent in 2016 from 1.4 percent in 2015 and well within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

The consumer price index has kicked up to an average of 3.1 percent in the first seven months while inflation inched up to 2.8 percent in July from the revised 2.7 percent in June.

Inflation, Breuer explained, is projected at the center of the BSP target band in 2017 and 2018, reflecting stable commodity prices and a near zero output gap.

BSP Governor Nestor Espenilla Jr. is set to preside over his first rate-setting meeting as BSP chief and Monetary Board chairman on Thursday since assuming office last July 3.

The multilateral lender believes the introduction of the interest rate corridor (IRC) system in June last year has improved monetary transmission as part of the shift toward more market-oriented monetary policy implementation.

Breuer warned about risks that are tilted to the downside and stemming mainly from eternal sources such as the lower growth in China, the normalization of interest rates in the US as well as rising concerns about globalization in some advanced economies.

The IMF official said the lender also supports the plan of the national government to raise infrastructure and social spending while anchoring fiscal policy at the deficit cap of three percent of GDP over the medium term.