13 Oct 21921 – IMF cuts Philippine GDP forecasts anew

by Lawrence Agcaoili – The Philippine Star, 13 Oct 2021

MANILA, Philippines — The International Monetary Fund (IMF) slashed anew its growth forecasts for the Philippines, expecting the economy to expand below the targets set by government economic managers as the country struggles to contain the resurgence of COVID infections.

In its latest World Economic Outlook (WEO), the IMF expects the Philippines growing by 3.2 percent, much lower than the original target of 5.4 percent for 2021. The IMF also sees the Philippines growing by only 6.3 percent next year, lower than the original target of seven percent.

The latest outlook of the IMF is also lower than the revised target set by government economic managers through the Development Budget Coordination Committee (DBCC) at four to five percent for 2021 and seven to nine percent for 2022.

Thomas Helbling, IMF mission chief for the Philippines, attributed the “sizeable reduction” in the bank’s growth projection for this year to the slower growth in the second half amid the resurgence of COVID cases.

“The second half is also expected to be slower than previously expected due to the third wave of COVID starting from August and increased uncertainty,” Helbling said.

The IMF’s projected 2021 growth for the Philippines is slower than Singapore’s six percent, Taiwan’s 5.9 percent, Vietnam’s 3.8 percent and Malaysia’s 3.5 percent, but equal to or faster than Indonesia’s 3.2 percent and Thailand’s one percent.

The Philippines slipped into recession as the economy shrank by a record 9.6 percent last year, ending 21 years of positive growth.

The country exited the pandemic-induced recession in the second quarter with a gross domestic product (GDP) growth of 11.8 percent.

However, Helbling pointed out the country’s real GDP contracted by 1.3 percent quarter-on-quarter on a seasonally adjusted basis, reflecting a stronger negative impact of the second COVID wave.

For 2022, Helbling said the downward revision in the IMF’s growth forecast reflects the mechanical impact of the weaker economic recovery in 2021.

The projected growth of the Philippines for next year is slower than Vietnam’s 6.6 percent but faster than Malaysia’s six percent, Indonesia’s 5.9 percent, Thailand’s 4.5 percent, Taiwan’s 3.3 percent and Singapore’s 3.2 percent.

“Continued policy support, vaccine rollout and global growth will support a stronger economic recovery in 2022,” Helbling said.

The multilateral lender also sees inflation accelerating to 4.3 percent and staying above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) for this year before easing to three percent next year.

Helbling said the main reasons for inflation running above the BSP’s two to four percent inflation target are the temporary supply shocks, including the effects of several typhoons, African swine fever and pandemic-related transportation restrictions.

“While these temporary effects have tapered off gradually, headline inflation increased to 4.9 percent in August from four percent in July, mainly driven by the effects of another typhoon. The important role of temporary factors in recent inflation developments is highlighted by the fact that core inflation remained relatively stable at an average of 3.3 percent during the first eight months of 2021,” he said.

Helbling said the BSP is likely to maintain an accommodative policy stance to allow the recovery from the pandemic-induced recession to gain more traction.

“The monetary policy stance is appropriately accommodative, given economic slack and the inflation outlook. Nonetheless, the BSP should stand ready to adjust the monetary policy stance if inflation increases become more entrenched,” Helbling said.

In its latest WEO, the IMF marginally slashed its global growth projection to 5.9 percent for 2021, but kept it unchanged for 2022 at 4.9 percent, as most emerging markets and developing economies have had a much slower COVID vaccine rollout, hampered by lack of supply and export restrictions.