IMF slightly downgrades PH growth forecast for 2017

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Metro Manila (CNN Philippines, August 8) — The International Monetary Fund (IMF) lowered its growth forecast for the Philippine economy citing external risks on spillovers from lower growth in China and U.S. monetary policy tightening.

In its Article IV Mission statement, IMF staff team led by Luis Breuer said the country's gross domestic product (GDP) — the broadest measure of the economy — will continue to remain strong at 6.6 percent this year, but this is slightly lower than its previous forecast of 6.8 percent.

Robust domestic demand and recovery in exports will support this year's growth, it added.

The growth projection falls within the government's goal of 6.5 percent to 7.5 percent this year, but slower than the country's last year's 6.9 percent growth.

"Growth is projected to remain close to potential 6.6 percent in 2017 and 6.8 percent in the medium term," IMF report said. The IMF team visited Manila from July 26  to August 9.

The country's GDP grew by 6.4 percent in the first quarter this year, down from 6.9 percent in same period a year ago.

Low inflation is also expected to support the country's growth, which is seen at center of the forecast range for this year and next, reflecting stable commodity prices, the IMF said.

Inflation in July slightly increased on price increases in the transport sector, according to the National Economic and Development Authority (NEDA) report. Inflation increased to 2.8 percent in July from the revised 2.7 percent the previous month.

In terms of domestic risks, the IMF included natural disasters and security-related events in some parts of the country.

For external risks, IMF also noted rising concerns about globalization in some advance economies aside from spillovers from lower growth in China and US monetary policy tightening.

"Risks are tilted to the downside and stem mainly from external sources," the IMF said.

IMF team also supports the government's plan to raise infrastructure and social spending while avoiding overheating and preserving investor confidence.

The government spends 5.4 percent of its GDP on infrastructure.

Breuer said passing the first package of the comprehensive tax reform  proposal is critical to sustain the rise in expenditures.

"Passage of the budget reform  and rightsizing bill will also help furher imporve spending efficiency and quality, helping achieve the inclusive grwoth agenda," he added.

It also welcomes the 2018 national government budget , which implies a return to a broadly neutral fiscal stance.

Education and infrastructure development programs will be the priorities under the proposed national budget for 2018, the Department of Budget and Management has said.

The national government increased its 2018 budget by 12 percent to P3.767-trillion (US$75 billion), which will continue to support the plans of the Duterte administration.

The IMF also said that structural reforms such as elminating quantitative restrictions in rice imports while supporting affected farmers would help reduce  consumer prices and poverty.

The IMF's economic growth forecast is slightly higher than that of the Manila-based Asian Development Bank, which forecast a GDP of 6.5 percent by year's end.

READ: ADB upgrades PH GDP outlook due to infrastructure investment, tax reform measures