IMF Boosts Philippines Expected Growth to 6.3 Percent
The International Monetary Fund (IMF) has raised this year’s growth forecast for the Philippines to 6.3 percent, up from a previous estimate of 6 percent. The upgrade is based partly on a slightly more optimistic outlook of advanced economies, and partly on the on-going reconstruction work that will be required as a result of the devastation caused by super typhoon Yolanda. Growth is expected to improve further still in 2015 to between 6.5 and 7 percent, according to the IMF’s rough estimate.
The improved outlook for advanced economies such as the US is expected to bolster the Philippines’ external sector, particularly its merchandise exports. Typhoon-related reconstruction work, on the other hand, will have a fiscal stimulus effect. Budget Secretary Florencio Abad has estimated the government will spend around US$8 billion over four years on reconstruction work following Yolanda.
IMF resident representative in the Philippines, Shanaka Jayanath Peiris, announced the revised forecasts in a news briefing on IMF’s world economic outlook, after assessing global and domestic developments over the past several months.
According to Peiris, the slower growth forecast in 2014, compared to 2013’s 6.8 percent, is due to base effects from last year, and the actual growth momentum is around 6.5 to 7 percent : “The growth momentum is around the government’s target range. We have 6.3 percent this year because last year was so high, especially in the first half of the year. Which means that the base effects of this year are negative, they have a negative carry. So the government is actually expanding at a growth momentum of 6.5 percent to 7 percent – which is what the authorities are forecasting – but because of the base effects last year, this year will be a bit lower – these are our expectations.”
With the strong growth estimate, the inflation estimate also rose to 4.4 percent, from an earlier forecast of 3.5 percent in September.
The Philippines stock exchange reacted positively to the news, with the PSEi rising above 6,100 points for the first time in several weeks.
The credit rating agency Moody’s Investors Service also gave Philippine-based banks a positive assessment, adding that the Philippines’ banks are expected to perform strongly during 2014. Stephen Long, Moody’s Asia Managing Director stated, “Most banking systems in Asia are well capitalized and enjoy a strong profitability buffer, while the assets remain largely funded by domestic deposits, a situation which adds resilience to their liquidity profile.” He added, “The Philippines continues to be a positive outlier, with strong economic momentum but only moderate credit expansion compared to nominal GDP growth.”
Moody’s outlook for local banks remains positive.
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