The International Monetary Fund (IMF) downscaled again its 2009 economic growth projections for the Philippines from its 3.5-percent estimate in November last year to only 2.25 percent.
Despite the slowdown, however, the IMF said the Philippines still had “considerable room” for monetary easing that would stimulate growth, especially if done in tandem with a calibrated increase in fiscal spending.
With its tight global linkages, the IMF said the Philippines has already started to slow down in 2008 but even if growth would slow down even further, IMF officials consider this a positive indicator.
“Because it is very much caught up in the kind of global factors that are affecting demand across the region, we are projecting Philippine growth in 2009, on average, to be about 2.25 percent, said Anoop Singh, director of the IMF’s Asia and Pacific Department.
“So it will be lower than the 2008 growth figures, but it will be positive, significantly positive,” Singh added.
At the end of its annual review last year, the IMF had projected the 2009 growth rate at 3.5 percent which was already a revision of an earlier forecast that placed this year’s growth rate at 3.8 percent.
The IMF said it saw growth slowing down even further than originally expected, mainly because of the easing of demand in the country’s major export markets.
Singh said the IMF was encouraged by the decision of the Arroyo administration to undertake a fiscal stimulus plan in order to prevent the economy from stalling.
“There is some room on the fiscal side, not an awful lot, but there has been approval by Congress of the budget that has some appropriate stimulus,” Singh said.
Singh added that inflation rate has been going down all over Asia including the Philippines where the rate is actually coming down faster than the drop in interest rates.
“So we’re not quite sure where the Philippines fits into the spectrum, but, as a general principle, inflation rates are falling very fast,” Singh said. “Therefore, in many places, there remains considerable room for further monetary easing.”
According to IMF Managing Director Dominique Strauss-Kahn, on the other hand, the Asian region as a whole is expected to turn around from the current slowdown at the same time as the rest of the world.
“We see it at the same time as the rest of the world because we don’t believe that it’s really possible for the Asian economies to have a recovery with the rest of the world economy being in such a bad shape,” Strauss-Kahn said. “So, globally, the world economy will recover at the same time.”
However, Strauss-Kahn said some Asian economies are more dynamic, with significant resources and strong fundamentals.
“So, when the process of recovery will start, we may expect that for some economies it goes faster than for other ones,” he said. “I think some Asian economies are very good candidates to be the leading economies when that process will start again.”
In the meantime, Strauss-Kahn said the IMF supports the increase in public demand, particularly for infrastructure that cover not just civil works but also health, education, even financial infrastructure like pension systems.
Strauss-Kahn said economies would also have to look at the shift from export demand to domestic demand since the traditional export markets of Asian economies would be hardest hit by the global slowdown.
“The problem to shift from an export model to a domestic growth model is not that much to know how to increase the domestic demand but to know how to increase the supply which is likely to alter this domestic demand,” he said.
Straus-Kahn explained that export-depended economies would have a supply structure intended for export which would not be the same as teh supply or production structure needed to address domestic demand.
“So it cannot be done overnight,” Strauss-Kahn said. “It’s a big shift in the economy to be able to transfer a part of growth, which means a part of the output from export to domestic demand. That’s a huge change.” –Des Ferriols, Philippine Star