IMF cuts growth forecast for Philippines, Asean

The IMF now sees the Asean 5—composed of the Philippines, Indonesia, Malaysia, Thailand and Singapore—is seen by the IMF to post an average growth of 5.2 this year and 5.6 percent in 2013 due to the prolonged crisis in the eurozone.

The International Monetary Fund has cut its growth projection even for the better-performing Asean region, which includes the Philippines, citing a mild recession likely to happen in Europe this year that may dampen growth of other areas.

The IMF now sees the Asean 5—composed of the Philippines, Indonesia, Malaysia, Thailand and Singapore—posting an average growth of 5.2 this year and 5.6 percent in 2013 on the back of the prolonged crisis in the eurozone. In its previous forecast, the IMF said the Asean 5 could grow 5.6 and 5.8 percent this year and next.

“The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated,” the IMF said in its latest World Economic Outlook released Tuesday.

Despite the cut in the Asean growth forecast, it is still much better compared with the projections for advanced economies, some of which were seen to register a benign recession.

The cut in the growth forecast for the Asean came on the back of a lowering in the growth projection for the eurozone and, consequently, the world economy.

The IMF now sees the eurozone contracting by 0.5 percent this year and growing by 0.8 percent next year. These compared with the previous estimates of a 2.1-percent growth for this year and 1.5-percent expansion for 2012.

The multilateral institution said one factor behind the debt crisis in the eurozone was the huge loss of its banking sector that led to very high borrowing costs for governments in the region.

“[Concerns] about banking sector losses and fiscal sustainability widened sovereign spreads for many euro area countries, which reached highs not seen since the launch of the Economic and Monetary Union,” the IMF said in the report.

The financial and economic turmoil in the eurozone is seen to affect Asian emerging markets such as the Philippines through several channels led by export. Sale of goods to Europe by exporting countries is seen to remain anemic this year as a result of the crisis.

Other channels through which the eurozone woes could be transmitted to emerging markets included remittances and investments. Besides being a major export market, Europe is also host to many migrant workers and accounts for significant amounts of foreign investments in emerging markets like the Philippines.

Despite the deterioration in its outlook for the world economy, the IMF said the forecasts did not point to a global economic contraction.

“The updated WEO [World Economic Outlook] projections see global activity decelerating but not collapsing,” the IMF said.