MANILA -- The International Monetary Fund (IMF) forecasts faster growth for the Philippine economy in the second half of 2018, saying that the slowdown in the second quarter was only temporary.
In a briefing Friday, IMF Resident Representative to the Philippines Yongzheng Yang said they expect a 6.6 percent growth in the third quarter and 6.9 percent in the last quarter, which would translate to a 6.6 percent average output for the year.
Aside from higher government spending, particularly on infrastructure projects, Yang said private investment, which he said remains “robust”, and household spending, are seen to drive domestic output in the second half of the year.
He cited that household spending in the second quarter “soften slightly but we think it will remain robust.” “Overall, we see growth will be driven continuously by domestic demand,” he said.
The IMF executive said contribution of external factors on domestic output “will probably be more modest because global demand will be slowing. “How that affects the Philippines will be watched but might expect some headwinds,” he said.
The average growth, as measured by the gross domestic product (GDP), of the projected output in the second half of thisi year is 6.6 percent, higher than the 6.3 percent output in the first half of the year.
Growth in the first quarter is 6.6 percent while it slowed to six percent in the following three months.
Thus, the 6.5 percent growth forecast for the whole of 2018, lower than the lender’s earlier projection of 6.7 percent.
Yang attributed the cut in their projection for this year to the slower output in the second quarter. “Next year, we expect growth to pick-up slightly,” he said, referring to the lenders 6.7 percent projection.
These forecasts are, however, lower than the government’s seven to eight percent growth target until 2022.
Despite this, Yang said the Philippine economy remains among the top performers and that growth outlook remains favorable. But risks remain, he said, citing the rising inflation, the strong growth of credit to GDP ratio, and global trade tension.
IMF forecasts rate of price increases to average at 4.9 percent this year and 3.9 percent next year, with this year’s forecasts above the government’s two to four percent target band. These factors are seen to be countered by the passage of the bill rationalizing fiscal incentives and the shortening of the negative investment list.
With these factors, the IMF team that visited the country last July recommended that the government adapt to changing economic landscape by adjusting the macro policy mix while keeping the overall policy stance unchanged and sustain reform efforts to ensure inclusive growth.
Yang said they have suggested that fiscal deficit be kept between 2.4-2.5 percent of GDP by containing non-priority spending and intensifying tax collection efforts. He said there is really a need to raise revenues to finance the large infrastructure gap and raise productivity.
Other measures that were proposed include trade reforms such as the current rice quota system, modernizing foreign investment regime, continuatio of the financial inclusion program to support inclusive growth, and leveraging on digital technology.
In a statement, the IMF cited the “importance of careful selection and management of infrastructure projects to maximize their impact on growth.” “Enhancing the VAT (value added tax) refund system and strengthening the international taxation framework will also be steps in the right direction,” it said, but stressed that these reforms should be accompanied by enhanced social protection.
Also, Yang said the 150 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates to date is a good move to help anchor inflation expectations and prevent any second round effects. “Going forward, the policy will be data driven. BSP is fully committed to price stability and indicated that it takes inflation seriously... to safeguard price stability,” he said
He added that combination of neutral fiscal stance and monetary policy tightening will help address overheating risks. “There are increased risks of overheating. Neutral fiscal stance will help address risks to make the economy on a more sustainable path,” he added. (PNA)
