The Philippines is expected to outpace other Southeast Asian economies with a forecast gross domestic product (GDP) growth of 7 percent this year, the International Monetary Fund (IMF) said in Manila on Wednesday.
But in Washington, the IMF lowered its forecast for the US and global economic growth this year, citing the European recession and reduced demand worldwide.
The world economy will grow 3.1 percent this year, the IMF said, down from its April projection of 3.3 percent. Growth also will be slower in 2014—3.8 percent compared with an earlier 4-percent forecast.
Shanaka Jayanath Peiris, the IMF resident representative in the Philippines, said the institution raised its growth forecast for the Philippines from 6 percent on the back of the robust GDP growth in the first three months of the year and the “strong growth momentum for 2013.” The IMF also upgraded the 2014 outlook from 5.5-percent growth to 6 percent.
But the IMF representative said there was still a lot of work to be done if the country wanted to maintain the strong economic growth.
“We can’t sustain high growth without doing anything.… We still see the need for structural reforms, which is part and parcel of the Philippines’s plan,” he said.
He cited the need for reforms in fiscal incentives, money taxation, increase in revenue collection to raise infrastructure spending to 5 percent of GDP and generate more job opportunities for investment and competition. He also said foreign direct investments (FDI) of the country should “pick up.”
The forecast for the Philippines was recast a day after the IMF downgraded its average growth forecast for the Southeast Asian region—which includes Indonesia, Malaysia, Thailand and Vietnam—from 5.9 percent to 5.6 percent this year due to the expected slowdown and new risks in the emerging markets.
“The region has been softer than expected. The Philippines is the only one we are raising forecast significantly. If you look at Asean [Association of Southeast Asian Nations], the forecast is lower and basically Asean 5 includes the Philippines,” Peiris said.
The IMF representative attributed the Philippines’s stronger growth momentum vis-à-vis the rest of the world to resilient domestic indicators, such as enough reserves, continuous remittance inflows, high fiscal spending and consumer demand.
According to Peiris, the US Federal Reserve tapering still has an effect and could be a risk to the country as in other emerging markets that benefitted from its $85-billion bond-buying program. He noted that the weak export figures in the country show that the Philippines was still subject to the downside risks of the weak overall global economy. He was quick to add, however, that domestic conditions in the Philippines were strong and would help the country cope better, compared to other economies.
“What we said was that the Philippines is generally in a better place compared to most countries because its high level of reserves could help cushion the exchange-rate volatility and the remittances, which are immune to global events, could also support the economy,” Peiris said.
“When you take a step back, the key things that come to mind are: the Philippines is enjoying a good demographic dividend, the labor force is youthful and English speaking, and the upcoming Asean 2015 provides a potential larger market. Macro indicators are also strong,” he added.
Inflation is still expected to be at the lower end, between 3 percent and 4 percent for the entire year. The country’s external position is also seen to be resilient, driven by remittances and the business process outsourcing sector. He added that the second quarter’s GDP is also seen to perform well as consumer confidence is rising. He said the overall economic indicators in the country halfway through the year are generally strong and that the first half of the year would be stronger than the second half of the year.
Part of the reason for the change in the US forecast was the automatic federal spending cuts, known as the sequester. The IMF said those cuts have “weighed on improving private demand” in the US and now are forecast to remain in place until 2014, longer than anticipated this spring.
But the pace of US fiscal consolidation will slow, allowing growth to pick up next year, the IMF said. And the US is doing much better than other advanced economies, which, as a group, are expected to grow just 1.2 percent this year and 2.1 percent in 2014.
“Private demand should remain solid, given rising household wealth owing to the housing recovery and still-supportive financial conditions,” the IMF said of the US economy.
The IMF projections are lower than new White House estimates.
The Office of Management and Budget said on Monday that the US economy would grow 2.4 percent this year and 3.4 percent in 2014, down from earlier projections. Those growth figures are in line with the latest forecast by the Federal Reserve, released last month.
Worldwide, the IMF said, “appreciably weaker domestic demand and slower growth in several key emerging market economies” such as China and India were a drag on global economies.
Emerging markets and developing economies are forecast to grow 5 percent this year and 5.4 percent next year, both 0.3 percentage points lower than the April forecast.
In addition, “a more protracted recession” in the euro zone was driving down economic demand. The IMF projects the region will remain in recession through 2013, contracting by 0.6 percent before weak growth of 0.9-percent returns in 2014.
The unemployment rate in the euro zone was a record 12.1 percent in May as the single-currency region struggled with its longest-ever recession. The 17-nation zone has had six straight quarters of economic contraction through the first quarter of 2013. (Los Angeles Times/MCT)
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