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By Bettina Faye V. Roc, Senior Reporter

IMF to revise outlook following Q1 slowdown

Posted on June 09, 2014

THE INTERNATIONAL Monetary Fund (IMF) is looking to revise its 2014 growth forecast for the Philippines following a worse-than-expected first-quarter slowdown.

“Overall, growth could be somewhat lower than the 6.5% projected before but will remain robust and the forecast will be revised with the Article IV report and next WEO (World Economic Outlook) revision on July 9,” IMF Resident Representative Shanaka Jayanath Peiris said in an e-mail.

Mr. Peiris noted that the first quarter easing to 5.7% was “slightly more than expected,” adding that this “was also an emerging markets phenomenon related to weaker exports.”

The multilateral lender currently sees Philippine gross domestic product (GDP) expanding by 6.5% this year and 2015. The figure was bared at the end of an Article IV consultation in March as well as during the release of the first WEO report in early April.

The government is targeting GDP growth of 6.5%-7.5% this year and 7%-8% in 2015. In 2013, growth was an above-target 7.2%.

The IMF said in March that the Philippines’ potential growth was only around 6.25%. The above-potential 6.5% outlook, Mr. Peiris then explained, was partly based on expectations of a “fiscal stimulus” coming from reconstruction activities in calamity-hit areas.

Mr. Peiris yesterday said rehabilitation efforts would still be among the drivers of growth.

“Going forward, we expect the economy to gradually pick up as exports rebound with the global economy but the trajectory would partly depend on the pace of reconstruction spending and need for monetary tightening,” the IMF official said.

Mr. Peiris noted that the 4.5% inflation recorded in May also emphasized that the need for accommodative domestic monetary policy had waned.

“[A]s noted in the press release for the Article IV mission, tighter monetary conditions would help mitigate potential second-round effects,” he said.

At its May 8 meeting, the Bangko Sentral ng Pilipinas’ (BSP) policy-setting Monetary Board kept overnight borrowing and lending rates at 3.5% and 5.5%, respectively, for a 12th straight meeting, with monetary authorities noting that the inflation environment remained manageable. Special deposit account rates were also kept steady at 2%.

However, reserve requirement ratios for universal/commercial banks and thrift banks were raised by one percentage point effective May 30. The ratio refers to how much as a percentage of current deposits banks need to keep with the BSP.

A one-percentage-point increase was previously ordered during a March 27 meeting. The latest adjustment brought the reserve ratio for universal and commercial banks to 20% and that for thrift banks to 8%.

The higher reserve requirements, monetary authorities have said, are meant to help keep both growth in liquidity and credit in check.

The Monetary Board next meets to discuss policy on June 19.