The International Monetary Fund (IMF) expects the domestic economy will grow by 6.7 percent this year, slightly higher than previous estimate of 6.6 percent. In its latest statement following the March 25 to 31 IMF Mission to the Philippines, the IMF said the 2015 growth forecast is changed a bit due to low commodity prices, higher public spending and an expected strong private construction and export expansion. The Philippine government projects GDP will grow 7.0 percent to 8.0 percent this year, from 6.1 percent in 2014. Earlier, the Asian Development Bank Outlook placed the country’s GDP growth at 6.4 percent in 2015. “Inflation is projected to remain in the lower end of the BSP’s (Bangko Sentral ng Pilipinas) target range (2-4 percent), reflecting lower commodity prices,” noted the IMF. “The current account surplus is expected to strengthen due mainly to lower oil prices and strong inflows from business process outsourcing, tourism and remittances.” The IMF said risks to inflation outlook will come both from external and domestic pressures. “Disruptive asset price shifts in financial markets due to a synchronous monetary policies in advanced economies remain a risk, although the Philippines’ strong fundamentals provide a cushion (while) external demand could be weaker if risks of deflation and lower potential growth in advanced economies and key emerging markets were to materialize.” The IMF said the BSP’s preemptive policy measures implemented last year, including real estate exposures of banks, have successfully contained liquidity and credit growth, thus reducing risks to financial stability. The IMF plans to conduct its next Philippine mission under “Article IV IMF consultation” in May. The last mission was led by IMF official Chikahisa Sumi who met with BSP Governor Amando M. Tetangco Jr. and various other cabinet officials, as well as private sector representatives. “Real GDP continued to grow briskly and unemployment fell in 2014. The 6.1 percent growth in 2014 was one of the fastest in the region, led by a strong contribution of household consumption, fixed capital formation and net exports," the IMF said. "While agricultural production and government spending were weaker than expected, both sectors rebounded in the last quarter of 2014. The unemployment rate fell to 6.8 percent in 2014 with about 1 million new jobs created, while poverty remained a challenge," the report said. On the domestic front, the preemptive policy moves of the Bangko Sentral in 2014 have resulted in more moderate liquidity and credit growth, reducing financial stability risks. The BSP’s generally proactive approach to oversight of the financial sector, particularly real estate exposures, provides additional support in this regard, the report said. “On the macroeconomic policy mix, fiscal policy was contractionary with the budget deficit at 0.6 percent of GDP in 2014 while monetary conditions remained supportive of growth." "Going forward, the fiscal stance should provide a stimulus as budget execution picks up in 2015/16 toward the 2 percent of GDP deficit target, while monetary and macro-prudential policies continue to anchor inflation and financial stability," the report said. "Over the medium term, structural policy issues center around increasing investment, particularly in infrastructure and human capital. Continued efforts at enhancing revenue mobilization will be critical to address the large spending needs, including enacting measures to offset any revenue eroding policy change and preferably through a comprehensive tax reform," the IMF added.
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