Due to a slower-than-expected second-quarter expansion, the International Monetary Fund has cut its 2018 gross domestic product (GDP) growth projection for the Philippines to 6.5 percent.
In a press conference Friday, IMF resident representative in the Philippines Yongzheng Yang said the multilateral lender downgraded its forecast for this year from 6.7 percent previously as first-half growth averaged only 6.3 percent.
GDP grew by 6 percent in the second quarter, the slowest in three years, such that the first-half average fell below the government’s 7-8 percent target range.
Yang nonetheless said “the growth dip in the second quarter was temporary.”
He said strong domestic demand was expected to drive growth in the second half as he projected the GDP to grow by 6.6 percent in the third quarter and a faster 6.9 percent in the fourth quarter.
Yang said robust public as well as private spending would boost growth toward year’s end, while household spending, which slightly softened in the second quarter, would also support GDP expansion.
In a separate statement issued following the conclusion of the IMF executive board’s Article IV consultation with the Philippines on Sept. 17, the lender said “the economy continues to perform well but is facing new challenges.”
Real GDP growth is projected to grow strongly in 2018 and 2019, supported by domestic demand, the IMF said.
For 2019, the IMF retained its growth forecast of 6.7 percent.
The IMF, however, warned that “poverty and inequality challenges remain, inflation has risen, and external uncertainty has increased.”
The medium-term economic outlook remains favorable, but short-term risks have risen, it added.
According to the IMF, downside risks stemmed mainly from rising inflation, continued rapid credit growth, higher US interest rates and US dollar, volatile capital flows and trade tensions.
With regards to inflation, the IMF said it expected the rate of increase in prices of basic commodities to rise by 4.9 percent in 2018 and moderate to 3.9 percent in 2019.
The inflation forecast for this year exceeded the government’s target range of 2-4 percent.
As such, the IMF said its directors welcomed recent decisions of the Bangko Sentral ng Pilipinas (BSP) to increase the policy rate and its announced readiness to take further actions to safeguard price stability.
“In this context, they recommended carefully monitoring both supply- and demand-side pressures. They also welcomed the BSP’s decision to delay the bank reserve requirement cuts until inflation expectations are more firmly anchored,” according to the IMF.