The Market Monitor Minding the Nation's Business
By Luis Leoncio
The country’s growth estimate for this year received another downgrade in the run-up to the national elections in May, as the International Monetary Fund (IMF) cut its 2016 projections to 5.7 percent, from 6 percent; and next year’s to 6.2 percent, from 6.3 percent.
The IMF cited “weaker global growth prospects” for the downgrades, but analysts also factored in “uncertainties from the coming political exercise” as risk factors.
Still, IMF Resident Representative in the Philippines Shanaka Peiris said the Philippines “remains one of the strongest in the region.”
He said the cut in the 2015 projection was due to “growth outturns to the third quarter and weaker global growth performance,” while the adjustment in the 2016 target was made “to reflect the more challenging external environment.”
As of end-September, the domestic economy grew by 5.6 percent, the third-fastest in the region.
Contrary to the 6-percent growth projection of the government for last year, the World Bank (WB) earlier derated the country’s growth to 5.8 percent, from an earlier estimate of 6.5 percent; and the Asian Development Bank (ADB) at 5.9 percent from 6 percent.
The World Bank, in its Global Economic Prospects Report, sees the country’s growth at 6.4 percent this year, while the ADB foresees 2016 growth at 6.3 percent in its Asian Development Outlook supplement, against the Aquino administration’s goal of from 7.5-percent to 8.5-percent growth.
In its World Economic Outlook (WEO) update, the IMF also slashed its global growth projection for 2016 and 2017 to 3.4 percent and 3.6 percent, respectively, both down 0.2 points from its earlier estimate.
In the third quarter of 2015, the government reported a 6-percent growth, an improvement after slowing down to 5 percent in the first quarter and recovering to 5.8 percent the following quarter.
For 2017, the IMF’s growth outlook for the country is still at 6.5 percent.
“We expect the Philippine economy to continue growing strongly, supported by a robust private domestic demand and some recovery in export growth after the dismal global trade performance in 2015,” Peiris said.
He also said public-sector spending is expected to “contribute strongly to growth, as budget execution continues to improve and the construction phase of a number of PPPs (public-private partnerships) kick in.”
He added: “The medium-term economic outlook is based on an assumption of continued prudent macroeconomic policies and greater investments in infrastructure and human capital to benefit from the demographic dividend, supported by the low levels of public and private debt.”
Peiris said risks to global growth “remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States.”
But he added that the Philippines is relatively less exposed to China, given the low trade and financial linkages, and stands to benefit from the lower commodity prices.
“A generalized slowdown in growth in the region, tighter external financial conditions due to monetary policy normalization in the US, and sudden spikes in global risk aversion are downside risks,” he said.
“The Philippines is well positioned to deal with external shocks, because of its strong fundamentals and ample policy space,” he added. “The current policy configuration appears appropriate, given the continued strong growth outlook and anticipated pick up in inflation toward the target range in 2016 and 2017. Policies could be recalibrated if the downside risks were to materialize.”
Growth in emerging markets and developing economies is projected to increase from 4 percent in 2015, the lowest since the 2008–09 financial crisis, to 4.3 and 4.7 percent in 2016 and 2017, respectively, according to the WEO update.
It added that growth in China is expected to slow to 6.3 percent in 2016, and 6 percent in 2017, primarily reflecting weaker investment growth, as the economy continues to rebalance.
India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although some countries face strong headwinds from China’s economic rebalancing and global manufacturing weakness.
“In 2015, global economic activity remained subdued. Growth in emerging markets and developing economies—while still accounting for over 70 percent of global growth—declined for the fifth consecutive year, while a modest recovery continued in advanced economies,” the WEO update said.
It cited three key factors that influenced the global outlook:
• The gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services.
• Lower prices for energy and other commodities.
• A gradual tightening in monetary policy in the US in the context of a resilient US recovery as the central banks of several other major advanced economies continue to ease monetary policy.