IMF lowers Philippines growth target to 5.8%

This is from the Manila Times. Even though the Philippines is the second worst performer in Southeast Asia the U.S. would be ecstatic to reach that growth rate! Of course part of the growth is from overseas remittances. For expatriates paid in U.S. dollars they are buying less Philippine pesos because of the weak dollar. The growth may not help many of the poorest filipinos at all since inflated food prices are making their situation much worse.

IMF LOWERS GDP GROWTH TARGET
FOR PHILIPPINES TO 5.8%

By Maricel E. Burgonio, Reporter

The International Monetary Fund (IMF) has lowered its economic-growth forecast for the Philippines, which is poised to be the second-worst performer in Southeast Asia this year.

In its latest World Economic Outlook, the Philippines’ economic growth, as measured by gross domestic product (GDP), is expected to reach 5.8 percent this year, lower than the original projection of 6 percent and last year’s actual growth of 7.3 percent. GDP refers to the total market value of final goods and services produced within a country in a year.

Strong domestic consumption is expected to drive the country’s growth this year, fueled by expected strong remittance inflows from the millions of overseas Filipino workers. But growth is expected to be affected by a global economic slowdown, resulting from the US subprime mortgage crisis, the IMF said.

“IMF cited that robust domestic demand, led by consumption, supports the growth of Indonesia, Malaysia, Hong Kong SAR [Special Administrative Region], Philippines and Singapore, while export growth began to show some signs of moderation,” according to the report.

Philippine export growth declined by 5.2 percent to $4.241 billion as of January, compared with $3.9987 billion in the same period last year. Exports in the previous month reached $4.472 billion.

In the IMF’s Philippines Staff report, experts earlier suggested that the government should improve its revenue effort to post faster economic growth this year, which would likely be 6.3 percent. This will help government meet its priority targets, such as infrastructure development, as current reforms will only allow the economy to grow modestly, they added.

The Association of Southeast Asian Nations (Asean) member countries—including Indonesia, Thailand, Philippines, Malaysia and Vietnam—is projected to post a GDP growth of 5.8 percent this year, lower than last year’s 6.3 percent.

Vietnam is expected to post the highest growth this year with 7.3 percent, followed by Indonesia at 6.1 percent, Thailand at 5.3 percent, and Malaysia at 5 percent.

But the strength of domestic demand in the region, combined with rising food and energy prices, has contributed to a buildup of inflation pressures in a number of countries.

“Inflation pressures have also begun to emerge in Indonesia, Thailand, and the Philippines,” according to the IMF.

In the Philippines, inflation or increase of prices in March increased to 6.4 percent from the previous year, and in February, the increase was 5.4 percent compared with the same period in 2007. That reflects the impact of negative global developments, particularly the unprecedented surge in both oil and non-oil commodity prices, the IMF said. But the relative firmness of the peso against the US dollar continues to cushion the impact of higher imported oil and food prices on domestic inflation.

In terms of GDP growth in emerging Asia, IMF said it is expected to decelerate this year but remain robust at about 7.5 percent in 2008 and 7.8 percent in 2009, compared with 9.1 percent last year, as growth in the newly industrialized countries and other Southeast Asian nations are expected to weaken.

In light of the greater uncertainties associated with the outlook, policymakers face a difficult task in balancing the trade-offs between growth and inflation.

“The challenge remains to avoid overheating, which may require tighter monetary policy, supported by greater exchange rate flexibility in some countries,” the IMF said.

“Policymakers will need to respond flexibly, however, to evolving developments, with some scope for monetary policy easing in the event of a sharper than anticipated slowdown in countries where inflation expectations continue to remain well above anchored,” it added.

Moreover, the IMF said capital inflows in emerging economies are projected to slow this year as a consequence of the tightening of global financial conditions.

But the lender expects the direct impact of the US subprime mortgage crisis on regional financial systems has been limited.