Latest Philippine economic outlook

While the country is now back to “business as usual”—what with the next election already in the minds of our leaders and the recent move to impeach the Chief Justice—let us not forget what is happening to the economy, which is what matters really to our people, especially the poor, who still comprised a third, if not up to half, of our population.

In his presentation to the Asian Institute of Management in Manila last Nov. 4, International Monetary Fund (IMF) Deputy Managing Director Naoyuki Shinohara minced no words when he said that the global economy is in a dangerous phase. He said that with the continued weakness of the US economy and the uncertainty in the euro zone, the IMF, in its September 2011 World Economic Outlook, revised downward its growth forecast in advanced economies by about 0.7 percent of gross domestic product in 2011 and 2012 from its April 2011 World Economic Outlook.

In his presentation, however, Shinohara emphasized that taken together, global growth is still expected to continue at 4 percent in 2011 and 2012 due mainly to the still-robust performance of emerging and developing economies.

Shinohara also said that with the weaker global outlook, the IMF, in its most recent Asia and Pacific Regional Economic Outlook, also downgraded its projections for growth in the region in 2011 and 2012. In particular, China and India are now projected to grow at 9.5 percent and 7.8 percent in 2011, respectively. Growth in 2012, however, is expected to moderate slightly by half a percentage point in these two countries. In the Philippines, Shinohara mentioned that while the IMF September outlook expected growth to come down to 4.7 percent in 2011, economic activity is expected to pick up in 2012 to 4.9 percent.

Be warned, however, that the figures above were based largely on what happened in the first half. We know now, of course, that the last few months were no better, if not worse, for the Philippines. In the third quarter, for example, Philippine Gross Domestic Product (GDP) grew only by 3.2 percent due to the drastic fall in exports and the slow pace with which government expenditures expanded despite the obvious need to pump prime the economy in the second half and arrest the slide of the economy.

Given what happened in the last quarter, the following statement was finally issued in Manila last Monday at the conclusion of an IMF staff mission to the Philippines for the 2011 Article IV Consultations:

“The Philippines is being affected along with other countries in the region by the fragile global economic environment, but macroeconomic conditions remain generally sound. The authorities’ policy management is supporting confidence and has built up room for a strong response should further negative shocks occur. The key challenge now is to navigate through the period of global uncertainty to maintain macroeconomic stability while building the foundations for faster and more inclusive growth.

“GDP growth slowed in the first three quarters of 2011 owing to a fall in semiconductor exports and a temporary fall in public investment as new practices are put in place to improve the transparency and efficiency of government expenditure. The staff team expects growth to average 3.7 percent in 2011 and rise to 4.2 percent in 2012 as public spending recovers and private demand remains resilient. The global environment remains a key risk to the outlook. Inflation is expected to remain within the target range this year and next, and the balance of payments to stay in surplus.

“Monetary policy has responded well to changing circumstances. Policy tightening in early 2011 helped to forestall inflation pressures, while the pause in tightening in recent months has been justified by extreme global uncertainty and low core inflation. Monetary conditions remain supportive of growth, suggesting that an easing of conditions is not needed at this time. If global downside risks or further negative shocks were to materialize, monetary policy could be recalibrated.

“Fiscal policy should provide welcome support for growth in 2012, as expenditures rise from their unexpectedly low level this year. Over the medium term, the planned fiscal consolidation should strengthen the ability of the budget to respond to future shocks. Expenditure is being appropriately reoriented toward social and infrastructure priorities for inclusive growth. Higher revenue will be needed in order to meet these objectives. The authorities’ emphasis on strengthening tax compliance is appropriate and the fund continues to support these efforts with technical assistance. In addition, it will be important to reform excesses, rationalize fiscal incentives, and broaden the tax base.

“The financial sector has been resilient to the global turbulence. Vulnerabilities from concentration and interest rate risks, real estate exposures, and potential spillovers from global financial disruptions need to be carefully monitored. It remains important that amendments to the Bangko Sentral ng Pilipinas (BSP) Charter be quickly approved to give supervisors stronger legal protection as well as allow the BSP to issue its own debt securities for more effective conduct of monetary policy and promotion of macroeconomic stability.”