Philippine growth outlook kept cautious

Source: Business World, October 07, 2014 11:09:00 PM

By Daryll Edisonn D. SaclagReporter

THE INTERNATIONAL Monetary Fund (IMF) has maintained its growth forecast for the Philippines this year on the back of strong demand for locally made goods and robust money supply, but cut its outlook for the country next year amid tighter financial conditions globally.
In a quarterly update to its World Economic Outlook report that was released yesterday, the Washington-based lender said it was keeping its 6.2% growth projection — given last July — for the Philippines this year due to “favorable external demand and broadly accommodative policies and financial conditions.”

The IMF previously saw gross domestic product (GDP) growth at 6.5% for this year, but lowered it to 6.2% in July after a worse-than-expected slowdown in the first three months of the year.

The economy grew by 6.4% in the succeeding quarter, buoyed by strong exports and manufacturing output, but was still slower than the 7.9% notched in April-June last year.

Faster-than-expected second-quarter growth, however, was still not enough to lift IMF’s expectations for the Philippine economy.

IMF Representative to the Philippines Shanaka Jayanath Peiris, said in an e-mail: “Economic developments, including recovery in exports, have not been very different from what we expected before and thus the growth forecast of 6.2% for 2014 remains.”

Latest available data showed that exports of manufactured goods totaled $5.461 billion in July, up by 12.4% year on year. The growth was faster than the 2.8% rise recorded a year ago, but was slower than June’s 21.3% jump. As of July, the value of exports totaled $35.129 billion, up 8.5% from year before, besting the government’s target of 6% for 2014.

Even with the 6.2% projection, the Philippines is still expected to emerge this year as the fastest-growing economy among the top five economies in the Association of Southeast Asian Nations (ASEAN). The bloc itself is seen to slow to 4.7% this year from 5.2% last year. Malaysia, Vietnam, Indonesia and Thailand this year are expected to grow 5.9%, 5.5%, 5.2% and 1.0%, respectively.

The government is targeting the to grow between 6.5-7.5% this year. In the first half of 2014, the economy managed to hit just 6%.

For next year, the IMF trimmed its projection for the Philippines to 6.3% from 6.5% previously. Mr. Peiris explained that the Philippines is “expected to accelerate more modestly in 2015… amid tighter global financial conditions.”

While IMF’s 6.3% forecast for next year is significantly lower than the official 7-8% target set by the government for 2015 it is still the fastest among ASEAN-5. In comparison, in 2015, Vietnam is expected to grow 5.6%; Indonesia, 5.5%; Malaysia, 5.2%; and Thailand, 4.6%.

The IMF flagged as “immediate risks” to the 2015 outlook for ASEAN-5 and developing Asia, in general, the “sharp tightening of global financial conditions — triggered, for instance, by greater volatility induced by US monetary policy normalization or a spike in global risk aversion — which could lead to capital outflows, asset price declines, and higher domestic interest rates.”

“This risk is more elevated in countries that depend to a greater extent on external financing (India, Indonesia) and in economies with large foreign investment presence in domestic financial markets (Indonesia).”

While its latest report showed the Philippines growing slower than official targets, IMF projected inflation rates for the country that jibe with the government’s forecast: 4.5% this year and 3.9% in 2015, against the central bank’s own 4.5% and 3.8% forecasts for average inflation for the same years, respectively.

With actual inflation averaging 4.4% in the eight months to August — past the mid point of the central bank’s 3-5% target range for this year — some analysts have said that the lower 2-4% target for next year is at risk of being breached.

IMF’s growth projections for the Philippines compare closely with those of two other establishments.

On Monday, the World Bank also kept its lower growth forecast for the Philippines at 6.4% this year, 6.7% in 2015 and 6.5% in 2016 — all below government growth goals of 6.5-7.5%, 7-8% and 7.5-8.5% for these years. The latest figures retained the World Bank’s downwardly revised growth forecasts for the country in the Philippine Economic Update report released on Aug. 7. Despite the lower forecasts, the country is still expected to be the fastest-growing economy among original members of the ASEAN, beating the average of the 10-country bloc, “Developing East Asia excluding China” and of developing countries. The World Bank noted that the growth forecasts for the Philippines were anchored on the assumption that the government would ramp up spending and implement more fiscal reforms.

The Asian Development Bank (ADB) last month also cut its own growth forecast for the country this year to 6.2% from 6.4% and for 2015 to 6.4% from 6.7% amid low state spending, quickening inflation and monetary policy tightening. Nonetheless, the ADB also expects the Philippines to be the fastest-growing economy in Southeast Asia in both years.