By Lee Chipongian
The International Monetary Fund (IMF) has recasted its 2019 Philippine growth projection lower to 6.6 percent and raised its inflation forecast to four percent next year, based on the latest World Economic Outlook (WEO October 2018) report.
The latest growth projection was released along with new estimates for global growth or the world output which the IMF is now projecting to grow more slowly at 3.7 percent this year and in 2019 because of trade tensions, particularly between the US and China. In 2017, global economy grew by 3.7 percent.
The IMF has slashed its global growth projections from its previous estimate of 3.9 percent in its July and April WEO. “Risks to global growth skew to the downside in a context of elevated policy uncertainty,” said the IMF. It added that downside risks detailed in the April WEO “have become more pronounced or have partially materialized” such as trade barriers and reversal of capital flows to emerging market economies with weaker fundamentals and higher political risk. It also noted that “while financial market conditions remain accommodative in advanced economies, they could tighten rapidly if, for example, trade tensions and policy uncertainty were to intensify (and) monetary policy is another potential trigger.”
For the Philippine growth forecast, this is the second time since July this year that the IMF has revised its 2019 local growth projection. Based on its July and September 2018 IMF Staff Report (part of Article IV assessment), it projected 6.7 percent growth for next year.
In the meantime, the IMF kept its 2018 GDP forecast of 6.5 percent for the country, as announced last month, which was a revision from its July estimate of 6.7 percent. Both the 2018 and 2019 projections were lower than actual 2017 GDP of 6.7 percent.
The IMF has cited short-term risks such as rising inflation and inflation expectations, high credit growth, and the challenging external environment for the lower 2018 and 2019 growth projections, which has also increased concerns of overheating. It also listed risks such as higher oil prices, global trade tension and the impact of higher US interest rates and volatile capital flows on borrowing costs over the short term.
In the latest WEO report, the IMF also raised its 2019 inflation projection to four percent from 3.9 percent in the Staff Report for the Philippines, but retained the 4.9 percent projection for this year. Actual inflation number was only 2.9 percent in 2017. The end-of-period inflation projection, in the meantime, is 5.2 percent for this year and 3.7 percent for 2019.
The WEO report also included 2023 projections: 6.9 percent GDP growth for the Philippines, and three percent for its inflation.
Growth projections for emerging Asia
The IMF has revised its emerging and developing Asia growth outlook for 2019 and it was lower at 6.3 percent from 6.5 percent and 6.6 percent, respectively, in its July and April WEO report. The 2018 growth projection for the region was unchanged at 6.5 percent which was also the actual growth number in 2017. Emerging Asia includes ASEAN 5 countries plus China and India.
ASEAN 5, which includes the Philippines, Indonesia, Malaysia, Thailand and Vietnam, is also expected to sustain its 5.3 percent 2017 growth up to 2018, but will slow down next year to 5.2 percent, according to the IMF. The 2019 growth outlook is lower than 5.3 percent and 5.4 percent made in its July and April projections.
The Philippines’ 6.5 percent 2018 projection is the second highest growth estimate in the trade bloc after Vietnam’s 6.6 percent. For 2019 however, the country’s 6.6 percent growth forecast tops most countries in ASEAN, closely followed by Vietnam with 6.5 percent while Indonesia is a distant third with 5.1 percent.
The Asia economy as a whole is expected to grow by 5.6 percent this year from 5.7 percent in 2017, and 5.4 percent in 2019.
According to the IMF, growth will remain strong in emerging and developing Asia but ASEAN 5 will have a softening in 2019 which “reflects largely the economic costs of recent trade measures.”
The region’s slower growth next year mirrors the global growth’s similar softening over the medium term. “Global financial conditions are expected to tighten as monetary policy normalizes; the trade measures implemented since April will weigh on activity in 2019 and beyond; US fiscal policy will subtract momentum starting in 2020; and China will slow, reflecting weaker credit growth and rising trade barriers,” the report said.
In the meantime, the IMF said growth for China and a number of Asian economies “have also been revised down following the recently announced trade measures” and that the forecast will continue to be “tilted to the downside, both in the short term and beyond.”
The IMF said for all countries with similar concerns such as in emerging and developing Asia, they recommend controlling inflation to target better, as well as boost buffers more and “curb excess imbalances.”
“Monetary accommodation needs to continue where inflation is weak, but cautious, well- communicated, data-dependent normalization should proceed where inflation is close to target,” it said.
The IMF added that “fiscal policy should aim to rebuild buffers for the next downturn, and the composition of public spending and revenues should be designed to bolster potential output and inclusiveness.”
For emerging and developing Asia specifically, the IMF sees the region continuing to grow “at a strong pace” despite the lower 2019 forecast which was mostly driven by trade-related conflicts that will have a negative expected impact.
The WEO is based on surveys conducted by the IMF and published twice a year, mainly April and October, with updates in July. It includes all of its Staff Reports for all IMF members, and the analyses and projections are in the country, regional and global levels.