IMF trims PH growth forecast

The International Monetary Fund on Monday said the Philippine government should spend more next year to support the domestic economy amid the expected weakness in the global environment.

At the conclusion of the 2011 Article IV consultation with the government, the multilateral lender said the global environment will remain weak, adding that the Philippines will “feel the effects of this weakness through exports.”

“The Philippine is being affected along with other countries in the region by the fragile global economic environment, but macroeconomic conditions remain generally sound. Given the underspending this year, there is some scope for expenditure to expand substantially next year while still hitting the 2.6 percent debt-to-gross domestic product target,” Vivek Arora, IMF mission chief to Manila, told reporters in a briefing.

The Philippine economy grew by a disappointing 3.2 percent in the third quarter from a revised 3.1 percent in the previous quarter owing to the 13.2-percent contraction in merchandise exports, a reversal of last year’s 23.1 percent growth.

The IMF expects Philippine growth to average 3.7 percent this year and rise to 4.2 percent in 2012 on the back of recovering public spending coupled with resilient private demand.

“Fiscal policy should provide welcome support for growth in 2012, as expenditures rise from their unexpectedly low level this year. Over the medium term, the planned fiscal consolidation should strengthen the ability of the budget to respond to future shocks,” Arora said.

He also said that monetary conditions have been supportive of growth, “suggesting that an easing of conditions is not needed at this time.”

“Monetary policy has responded well to challenging circumstances. Policy tightening in early 2011 helped to forestall inflation pressures, while the pause in tightening in recent months has been justified by extreme global uncertainty and low core inflation,” Arora said.

With the historic low level of policy rates, the Bangko Sentral ng Pilipinas will have enough room to recalibrate if global downside risks or further negative shocks were to materialize in the future, the IMF said.

During the December 1 meeting of the Monetary Board, the BSP decided to keep the overnight policy rates at 4.50 percent and 6.50 percent to support growth amid a benign inflation outlook.

The IMF expects inflation to remain within the BSP target range of between 3 percent and 5 percent this year and the balance of payments to stay in surplus.

Headline inflation for November dropped to 4.7 percent from 5.3 percent in October. –Lailany P. Gomez Reporter, Daily Tribune