IMF cuts 2017, 2018 Philippine GDP forecasts

MANILA, Philippines – The International Monetary Fund (IMF) cut its Philippine economic growth forecasts for 2017 and 2018, after weak private consumption pulled down the gross domestic product (GDP) expansion in the 1st 3 months of the year.

Luis Breuer, head of the 2017 Article Mission to the Philippines that arrived in Manila last July 26, said the GDP growth forecast has been slashed to 6.6% from an earlier outlook of 6.8% this year. For 2018, the IMF sees Philippine GDP growing to 6.8%, from an earlier projection of 6.9%.

"Overall, we are very optimistic about growth in the Philippines. It's true as you point out that our growth projection was revised a little bit from 6.8% to 6.6%. The reason for that was basically math," Breuer said.

A temporary deceleration in public spending and strong base effects, following the elections last year, pulled down the GDP growth to 6.4% in the 1st quarter of 2017, from 6.6% in the 4th quarter of 2016.

"Growth in the 1st quarter was lower than anticipated and as you know, growth is measured relative to the same period last year when during [the] electoral cycle there was higher spending which led to temporarily higher growth. When you combine these factors, growth in the 1st quarter was a bit slower than expected," Breuer added. (READ: Philippine economy to top ASEAN-5 in 2016 – IMF)

Election-related spending boosted the GDP growth to 6.9% in 2016 from 5.9% in 2015, within the higher end of the government target of 6% to 7%.

The multilateral lender said the economic performance of the Philippines continues to be strong, featuring robust growth combined with low inflation.

Breuer stressed the need for the government to pursue the comprehensive tax reform program, provide insurance against the volatile international finance conditions, and protect investor confidence.

Inflation forecast

Inflation climbed to 1.8% in 2016 from 1.4% in 2015, well within the 2% to 4% target set by the Bangko Sentral ng Pilipinas (BSP).

The consumer price index rose to an average of 3.1% in the 1st 7 months of the year, while inflation inched up to 2.8% in July from the revised 2.7% in June.

Inflation, Breuer explained, is projected at the center of the BSP target band in 2017 and 2018, reflecting stable commodity prices and a near-zero output gap.

The robust domestic demand and benign inflation environment give the BSP more flexibility in keeping an accommodative monetary policy stance.

"The current monetary stance remains appropriate, and the BSP should continue to stand ready to adjust to changing market conditions or if inflation pressure builds up," the IMF official said.

BSP Governor Nestor Espenilla Jr is set to preside over his first rate-setting meeting as BSP chief and Monetary Board chairman on Thursday, August 10, since assuming office last July 3. – Rappler.com