The Philippines is expected to take a slight hit from weak global economic conditions, which may weigh on the country’s solid fundamentals, according to the International Monetary Fund (IMF).
The IMF has announced that it had cut the Philippines’ gross domestic product (GDP) growth outlook to 6.75 percent for 2013, down from the previous outlook of 7 percent. The forecast of 6 percent for 2014 was retained.
“That’s really just a function of lower regional growth,” IMF Country Representative Shanaka Peiris told reporters on Tuesday.
He said the IMF was also planning to cut its growth outlook for emerging markets like the Philippines across the world due to weak economic conditions in major developed countries like the United States and Europe.
The previous outlook for emerging markets was 5 percent in 2013, Peiris said. This showed that the Philippines was still considered a bright spot in the global economy.
“We have made it clear that we expect emerging markets to be slower than we thought before. But the Philippines has always been the country that’s bucking the trend,” Peiris said.
Peiris said growth for 2014 was kept at the original forecast of 6 percent due to the country’s strong fundamentals—namely low inflation, growing revenues from remittances and the outsourcing sector and an improved fiscal position that has helped keep the cost of money down.
“The fact that we kept the 2014 outlook should be seen as an upgrade because everyone else is slowing down,” Peiris said.
Apart from weaker economic conditions in major trading partners like the United States, other major challenges faced by the Philippine economy included the timing of the US Federal Reserve’s tapering of its bond-buying program.
The US Fed during its September meeting kept its bond-buying program at $85 billion a month, but said these asset purchases would be scaled down later this year.
“As in other emerging markets following the announcement of prospective tapering of asset purchases by the US Federal Reserve in late May, Philippine assets saw selling pressure that caused the peso to weaken and market interest rates to rise,” the IMF said in a statement.
“Recent delay in the commencement of tapering led to some reversal of previous market developments,” it added.
The IMF said that when the Fed does start tightening its monetary policies, the Philippines’ strong fundamentals would help the country continue growing faster than most of the Asia-Pacific region.
These strong fundamentals include robust dollar income from remittances and the outsourcing sector, the country’s net creditor status, steady reductions in public debt and low foreign participation in government securities markets.
The IMF said the country would be able to adjust smoothly to the accompanying capital flow reversal and slowdown in regional growth.