IMF trims GDP growth forecast for Philippines to 5.4%

MANILA, Philippines — The International Monetary Fund (IMF) now expects a slower economic recovery for the Philippines this year as it slashed its gross domestic product (GDP) growth forecast to 5.4 percent amid delays in vaccinations and the resurgence of COVID-19 cases.

IMF mission chief Thomas Helbling said in a virtual press briefing that the multilateral lender sees a bit of a slowdown in recovery in the first half, before a pickup in the second half of the year.

“The slowing in the recovery in the first half is mostly due to the second wave of the pandemic, which peaked in April and necessitated some stricter quarantine measures and has also weighed on confidence. But now, hopefully, the second wave should be on the way out,” Helbling said.

The Philippines slipped into recession with a record GDP contraction of 9.6 percent last year, ending 21 years of growth as the economy stalled when the government imposed the longest and strictest lockdown in the world.

Economic managers, through the Development Budget Coordination Committee (DBCC), earlier cut the 2021 GDP growth target to a range of six to seven percent instead of 6.5 to 7.5 percent and to a range of seven to nine percent from eight to 10 percent next year, as stricter lockdown and quarantine measures were reimposed in the National Capital Region and nearby provinces (NCR Plus) amid the resurgence in COVID-19 infections.

The IMF mission head said the uncertainty over the pace of economic recovery is high, although the balance of risks to economic activity is tilted toward the downside.

“Supply constraints could lead to delays in vaccinations, which in turn would increase the risk of virus resurgence after the recent second wave and tightening quarantine measures. Also, it could amplify the effect of external shocks, such as rising global interest rates and inflation, that would constrain the monetary policy response and raise financing costs for the public and private sector,” Helbling said.

For next year, the IMF sees a faster GDP growth of seven percent instead of the previous forecast of 6.5 percent.

“The economy is recovering gradually as quarantine measures are eased. The recovery that began in the third quarter of 2020 should gain momentum. Real GDP is projected to expand by 5.4 percent in 2021 and seven percent in 2022, due to continued easing of quarantine measures, progress in vaccinations, and macroeconomic policy support,” Helbling said.

He said a reinvigorated infrastructure push with greater private sector participation and a stronger global recovery could help accelerate growth.

The multilateral lender sees inflation accelerating to 4.2 percent this year before easing to three percent next year. Inflation averaged 4.4 percent from January to May and stayed above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Helbling stressed the importance of maintaining an accommodative monetary policy stance given the temporary nature of the recent inflation uptick.

“For the recovery to take hold, monetary policy should remain accommodative. While the recent spikes in inflation should be closely monitored, the present monetary policy setting is appropriate as the current inflation pressure appears to be temporary and is likely to taper off in the second half of the year,” he said.

The BSP emerged as one of the most aggressive central banks in the world last year after it slashed interest rates by 200 basis points, bringing the benchmark rate to an all-time low of two percent. It also lowered banks’ reserve requirement ratio.

“The authorities have deployed a comprehensive policy support package to address the sharp economic downturn following the strict containment measures imposed to slow the spread of the coronavirus and to reduce the pressure on the healthcare system. The policy support mitigated the hardship suffered by affected families and businesses and helped safeguard macro-financial stability,” Helbling said.

According to the IMF, there is also a need for the timely implementation of fiscal support that is crucial for continued recovery.

“The fiscal deficit targeted in the 2021 budget provides significant stimulus to economic activity, but given the imperative to beat the virus and the continued difficulties faced by vulnerable families and businesses, more resources could be needed,” he said.

Such resources, Helbling said, should aim to bolster the healthcare system to accelerate vaccinations, strengthen capacity for testing, tracing, isolation, and treatment, and support affected families and businesses.