The International Monetary Fund said Wednesday it reduced again the gross domestic product growth forecast for the Philippines this year to 6 percent from 6.2 percent made in January, amid slower global growth and financial market volatility.
It also reduced the 2017 forecast to 6.2 percent from 6.5 percent, as concerns over China’s slowdown threatened Asia’s outlook. China is one of the Philippines’ largest trading partners.
IMF mission head Chikahisa Sumi issued the statement, following a visit to Manila on Feb. 11 to 17, where he met Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. and other senior government officials.
“The economic outlook is favorable, but subject to increased downside risks, including lower growth in China and the region, higher global financial volatility and capital outflows, and weather-related disruptions,” Sumi said.
“Real GDP growth is projected at 6 percent in 2016 and 6.2 percent in 2017, driven by continued strong domestic demand offsetting weak net exports,” Sumi said.
These forecasts were lower than the IMF projections in the World Economic Outlook released in January.
The inter-agency Development Budget Coordination Committee also revised downward its growth target for 2016 by 0.2 percentage point, from the original range of 7 percent to 8 percent to a band of 6.8 percent to 7.8 percent.
The Philippine economy grew 5.8 percent in 2015, below the target range.
Sumi said despite the threats to growth this year both from external and domestic fronts, the “Philippines’ capacity to respond if these risks materialize is substantial given its ample reserves and policy space, both monetary and fiscal.”
Sumi also said the Philippine economy performed remarkably well in 2015 despite a weaker external environment and global financial turbulence.
The IMF official noted the decline in unemployment rate to a decade’s low of 5.3 percent, although significant underemployment remained.
Inflation rate fell to 1.4 percent in 2015, below the inflation target range of 2 percent to 4 percent, due to lower food and fuel prices.
“Despite a sizable decline in the fuel import bill and continued strong business process outsourcing inflows, the current account surplus is estimated to fall to 3 percent of GDP in 2015 [from 3.8 percent in 2014] due to sluggish exports and remittances, and is likely to narrow further in 2016,” Sumi said.
Sumi said while credit growth slowed to 13.1 percent in 2015, it remained supportive of financial stability and sustainable growth.
He said monetary conditions also remained supportive of growth while fiscal policy was focused on the medium-term objectives of supporting inclusive growth and infrastructure investment.
Sumi said with the budget deficit at 2 percent of GDP, the 2016 budget would provide
a modest fiscal stimulus and was consistent with a declining public debt ratio.
“Over the medium term, a continuation of prudent macroeconomic policies and good governance would be critical to sustain investor confidence and the growth momentum. To support growth, structural reforms will also be needed to address structural issues centering around the low rate of national investment, opening up the economy to greater competition and foreign investment, and high rates of poverty and inequality,” he said.