The International Monetary Fund kept its 6.3-percent growth projection for the Philippine economy in 2020, to be driven by higher fiscal spending of the government and backed by the recent monetary policy easing.
The estimate is contained in the conclusion of the 2019 Article IV Consultation on Jan. 27, 2020 with the Philippines by the IMF executive board.
“The outlook is positive. GDP growth is projected to have reached 5.7 percent in 2019 and rise to 6.3 percent in 2020, underpinned by government spending acceleration and the recent monetary policy easing,” the IMF said in a report released Friday.
Gross domestic product actually grew 5.9 percent in 2019, an eight-year low and which missed the target range of 6 percent to 6.5 percent, weighed down by the delayed approval of the P3.7-trillion national budget.
IMF’s projections for the Article IV consultation were completed before the release of the 2019 annual national account data on Jan. 23, 2020.
“Inflation is projected at 3.0 percent by end-2020, accompanied by a slight widening of the current account deficit to 2.3 percent of GDP in 2020 as investment picks up. Risks to the outlook are to the downside, reflecting risks to the global economy from augmented trade tensions, shifts in global financial conditions, and natural disasters,” it said.
The IMF said the Philippine economy continued to be a strong performer despite recent headwinds but faced downside risks to the outlook. It said prudent policies and structural reforms had supported economic activity and macroeconomic stability over the past decade.
“… Macroeconomic policies are attuned to the outlook. The moderate fiscal stimulus planned for 2020 and the monetary policy easing since mid-2019 are consistent with the economy moving back to growing at capacity and achieving the inflation objectives in the baseline outlook,” it said.
The IMF said the Philippines had policy space and could adopt a more expansionary macroeconomic policy stance should downside risks materialized.
“Under these adverse risk scenarios, fiscal stimulus should be prioritized toward public capital and social spending programs. The Bangko Sentral ng Pilipinas also has substantial space to lower its policy rate if downside surprises materialize,” it said.
The policy-setting Monetary Board of the BSP on Thursday cut the benchmark interest rates by 25 basis points to 3.75 percent, taking into account the still manageable inflation environment.
It was the board’s first rate cut since September of 2019. BSP Governor Benjamin Diokno said latest baseline forecasts indicated a “broadly steady path of inflation in 2020 and 2021, with the average remaining within the target range of 2-4 percent.”
Inflation in 2019 averaged 2.5 percent, significantly slower than 5.2 percent a year ago. The inflation rate in December accelerated to 2.5 percent from 1.3 percent in November and further to 2.9 percent in January due to faster increases in food prices.
Despite the developments, Diokno remained optimistic on the outlook of the Philippine economy, although he said the spread of the dreaded novel coronavirus might sap economic growth this year by 0.3 percent.
The interagency Development Budget Coordination Committee earlier projected a 6.5-7.5 percent GDP growth for 2020.
Last week, Finance Secretary Carlos Dominguez III said the government was sticking to this GDP growth target range for 2020, adding the country’s solid macroeconomic fundamentals would offset the domestic and external headwinds that were threatening to stymie the further expansion of the economy.