IMF slashes 2019 growth forecast for PH anew

The International Monetary Fund (IMF) further cut its 2019 growth projection for the Philippines to 5.7 percent—the lowest among multilateral lenders—on the back of the disappointing domestic expansion at the start of the year and a slowing global economy.

The IMF’s World Economic Outlook (WEO) report for October 2019, which was launched on Tuesday, showed that the Washington-based lender now expected the Philippines’ gross domestic product (GDP) growth this year to settle not only below the government’s 6-7 percent target range but also at a lower rate than its previous projection of 6 percent.

In July, the IMF downgraded its 2019 forecast from 6.5 percent in the April 2019 WEO report.

“Since our last update, the second-quarter GDP growth has turned out to be lower than expected. The latest WEO forecast takes into account this growth outcome and the worsening external environment,” IMF resident representative in the Philippines Yongzheng Yang said in an email.

To recall, GDP growth skidded to 5.5 percent during the second quarter—the slowest expansion in 17 quarters—mainly as government underspending took its toll, no thanks to the delayed approval of the 2019 budget.

In its latest WEO report, the IMF said “the global economy is in a synchronized slowdown, with growth for 2019 downgraded again—to 3 percent—its slowest pace since the global financial crisis.”

The IMF described the projected slide in global growth this year from 3.8 percent in 2017 as a “serious climbdown,” as the world was “in a synchronized upswing” two years ago.

It said this subdued growth was a consequence of rising trade barriers; elevated uncertainty surrounding trade and geopolitics; idiosyncratic factors causing macroeconomic strain in several emerging market economies, and structural factors, such as low productivity growth and aging demographics in advanced economies.
In the case of the Philippines, the IMF projected GDP growth in 2020 to improve to 6.2 percent, although below the government’s 6.5-7.5 percent target for next year.

By 2024, Philippine economic growth will be a faster 6.5 percent, IMF projections showed.

Among multilateral lenders, the IMF had the lowest 2019 growth forecast for the Philippines, below the World Bank’s updated projection of 5.8 percent, and the Asian Development Bank’s 6 percent.

All three lenders’ latest full-year GDP growth forecasts were lower than the actual expansion of 6.2 percent in 2018—the slowest in three years amid last year’s elevated inflation episode.

The IMF nonetheless sees inflation this year settling at 2.5 percent—within government target range of 2-4 percent, before the rate of increase in prices of basic commodities further slows to 2.3 percent next year.

Last year, headline inflation averaged 5.2 percent—a 10-year high—due to new or higher excise taxes slapped on consumption under the Tax Reform for Acceleration and Inclusion Act, skyrocketing global oil prices, and domestic food supply bottlenecks, especially of rice.

So far this year, inflation was on a downtrend given declining rice prices after importation was opened up, on top of base effects from last year’s high rate.

Also, the IMF sees the Philippines’ current account deficit narrowing from 2.6 percent of GDP last year to 2 percent this year before widening again to 2.3 percent next year.

Unemployment, meanwhile, was expected to further decline from 5.3 percent in 2018 to 5.2 percent in 2019 and 5.1 percent in 2020.

By 2024, the IMF projected inflation in the Philippines at 3 percent, and its current-account deficit at 1.9 percent of GDP.