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IMF slashes 2019 Philippine growth forecast as well

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By Elijah Joseph C. Tubayan, Reporter

THE INTERNATIONAL MONETARY FUND (IMF) has downgraded its economic growth forecast for the Philippines in 2019, over the worsening trade conflict between the US and China.

IMF’s Regional Economic Outlook: Asia and Pacific published on Friday bared a Philippine gross domestic product (GDP) growth projection of 6.6% in 2019, compared to the 6.7% in its Article IV consultation staff report released just last month.

“The revision to the 2019 growth projection reflects the changing international environment, namely the impact of escalating trade tensions, since the Article IV consultation,” IMF country representative Yongzheng Yang explained in an e-mail.

It kept the 6.5% growth estimate for this year which it penned near the end of September which was nevertheless a downward revision from the 6.7% estimate in its July report.

“In the Philippines, real GDP is projected to grow at 6.5% in 2018, led by strong domestic demand. The government’s infrastructure push and stable foreign direct investment are expected to accelerate investment growth. Private consumption is projected to remain robust, underpinned by remittances and rising employment,” the IMF said in its report.

If realized, GDP growth would slow from 2017’s actual 6.7% and fall short of the government’s 7-8% annual full-year target over the medium term. Economic growth averaged 6.3% last semester.

The IMF’s forecasts for the Philippines are better than the Association of Southeast Asian Nations (ASEAN) averages of 5.2% and 5.1% for 2018 and 2019, respectively, which were cut from 5.3% for both years in its April report.

The Philippines’ forecast for this year matches emerging markets’ and developing economies’ average of 6.5% this year (kept steady from April) but the former’s 2019 projection is faster than the group’s 2019 estimate of 6.3% (from 6.6%).

The IMF’s GDP forecast compares with World Bank’s 6.5% and 6.7% for 2018 and 2019, respectively, the Asian Development Bank’s 6.4% and 6.7%, the United Nations Economic and Social Commission for Asia and the Pacific’s 6.8% and 6.9%, and the Organization for Economic Co-operation and Development’s 6.7% for both years.

The IMF cited trade tensions between the United States and China as risks to the regional outlook. It also cited the tighter monetary conditions in the US as a risk that could trigger capital outflows from Asia Pacific, exerting more depreciation pressure on the peso that has lately been hitting 13-year lows and increasing the vulnerability of private firms to dollar-denominated debt.

“Sustained trade tensions could further undermine confidence, hurt financial markets, disrupt supply chains in the region, and discourage investment and trade. Greater protectionism could also make tradable consumer goods less affordable and boost inflation,” the IMF said.

Philippine year-on-year inflation rose to fresh multi-year-high 6.7% in September, averaging five percent in the first nine months against the central bank’s 2-4% full-year target for 2018.

The IMF expects the year to close with an inflation rate of 4.9%, steady from the estimate it made last month, but raised the 2019 forecast to 4.0% from 3.9% initially. It cited a weaker peso, higher excise taxes and rising global oil prices as key inflation drivers.

“Despite the recent policy rate increases to 4.5%, inflation is projected to remain above the four percent target upper bound in 2018 and stay in the upper half of the band during 2019-20,” the IMF said.