IMF upgrades RP growth forecast to 7% in 2010, 4.5% in 2011

MANILA, Philippines — The International Monetary Fund has again raised its growth forecast for the Philippines for 2010 and 2011, citing improving domestic demand and business sentiment in the country and the rest of Asia.

For this year, the IMF raised its growth projection to 7 percent from the 6 percent forecast made in July and the 3.6 percent announced in April.

For 2011, the country is now expected to grow by 4.5 percent, better than the original projection of 4 percent.

In its latest outlook on economies across the globe, the IMF said the revised projection for the Philippines mirrored the improved outlook for other economies in Asia. So far this year, IMF said, Asian countries showed faster-than-expected rebound from last year’s global turmoil.

“Asia entered the global crisis on a strong footing and is continuing to lead the global recovery,” the IMF said.

In the case of the Philippines, the domestic economy grew by 7.9 percent in the first half, beating most expectations. This prompted the government to believe that even its official growth target for the year — set at 5 to 6 percent — was already conservative.

The IMF said a robust increase in domestic demand had to do with sharp expansion of the Philippine and other Asian economies in the first half.

“In most parts of the region, resilience in domestic demand—thanks in part to proactive policy stimulus—has offset the drag from net exports,” the IMF said.

Exports by the Philippines and other Asian countries have so far rebounded this year after last year’s contraction. However, economists said, the growth was still short of making export revenues revert to the pre-crisis levels.

This is because recovery of the United States and Europe, major export markets, from the recession in 2009 was only moderate. Demand from these countries, although improving, thus remains volatile.

Still, IMF said Asian countries have become less dependent on Western economies, given that their domestic demands have been growing. Moreover, rising investments in Asian countries are helping sharpen their rebound.

Increase in investments from the private sector has allowed governments to take the backseat in driving Asian economies, the recovery of which was initially boosted by stimulus spending by the governments.

“The hand-off from public sector-driven to private sector-driven growth is well under way in most Asian countries,” the IMF said.

Economic managers in the Philippines said the same has been the case domestically, as investments have so far grown this year, although there would be much room for more.

The IMF said, however, that the Philippines should focus on improving its fiscal sector to avoid dampening an already improving competitiveness.

“Consolidation should be a priority where fiscal risks are building,” the IMF said, citing the Philippines among a few other countries where budget deficits of governments have risen sharply following the global crisis.

The budget deficit of the Philippine government hit P299 billion last year from P68 billion in 2008, and is expected to further increase to P325 billion this year. –Michelle Remo, Philippine Daily Inquirer