The International Monetary Fund (IMF) predicted that the Philippine economy would post flat growth this year, resulting from a contraction in remittances.
But a slow growth recovery is expected next year, it added.
In the IMF’s latest World Economic Outlook (WEO) report, the multilateral agency slashed its projection for the Philippines’ gross domestic product (GDP) to a flat growth this year from the previous forecast of 2.25 percent.
GDP is the total amount of goods and services produced in the country in a year, and is a proxy for a country’s economic performance.
The country’s growth is expected to be better than the projected contraction in Thailand and Malaysia, which are projected to register a decline of 3 percent and 3.5 percent, respectively.
Next year, IMF reported that it expects a modest improvement in the Philippines—1 percent GDP growth.
The government’s inter-agency Development Budget Coordination Committee recently downgraded its GDP forecast to 3.1 percent to 4.1 percent for this year because of the expected contraction in exports and remittances, which was lower than the earlier forecast of 3.7 percent to 4.4 percent.
“The downward revision to Philippines growth needs to be seen in the context of the global economic developments and outlook reflects the prospect of significant contraction in exports and weakened outlook in remittances,” Dennis Botman IMF country representative said in a press conference.
Botman said remittances are expected to contract by 7.5 percent this year but expected to improve again next year. The Bangko Sentral ng Pilipinas (BSP) forecast a flat growth for remittances this year from $16.4 billion last year.
“We do see a slowdown in private consumption and an important contributor to growth despite the slowdown in remittances,” he said, which attributed to lower inflation or increase of prices.
IMF predicted inflation to reach 3.4 percent this year and 4.5 percent next year, which is within the central bank’s inflation target of 2.5 to 4.5 percent in 2009 and next year’s forecast of between 3.5 percent and 5.5 percent.
IMF report said the Association of Southeast Asian Nations (Asean) economies are being severely hit by the combined effects of lower global demand and tighter credit conditions.
IMF expects the world economic growth to contract by 1.5 percent this year.
“The principal policy challenges are to cushion the effects of the crisis and achieve a sustained reduction in the region’s reliance on exports as a source of economic growth,” IMF said.
Room for rate cuts
IMF said central banks in the region particularly Cambodia, South Korea, Malaysia, the Philippines, Singapore and Thailand, which cut policy rates or decreased reserve requirements, have more room to further cut its interest rates.
“Despite these actions, there is room for additional monetary easing in a number of economies,” the IMF report said.
To spur economic growth, the Philippine central bank reduced its key policy rates by 150 basis points since December last year, bringing the overnight borrowing and lending rates to 4.5 percent and 6.5 percent, respectively.
Also on Wednesday, HSBC reported that the Philippines’ economic growth is expected to weaken further—even lower than government’s slashed targets—despite higher fiscal spending and lower interest rates.
Frederic Neumann, HSBC’s senior Asian economist, told reporters that the country’s GDP is likely to grow just higher than 1 percent this year but would recover next year to 3 percent.
The Philippine government, however, is optimistic to reach a modest GDP growth of 3.1 percent to 4.1 percent this year despite the expected contraction in exports earnings and slower remittances.
Neumann urged the government to revive its fiscal spending plan to further support economic growth.
“The ability to move the economy is limited in interest rates [cut] but on fiscal spending,” Neumann said during a press briefing. –Maricel Burgonio, Senior Reporter, Manila Times