WASHINGTON – The strong growth momentum of the Philippines over the past 18 years is sustainable as reflected in the robust projections of the International Monetary Fund (IMF) for the next two years, according to the Bangko Sentral ng Pilipinas.
BSP Governor Amando Tetangco Jr. told participants in a public lecture organized by the Philippine embassy here in Washington that the solid macroeconomic fundamentals would help preserve the fastest gross domestic product (GDP) growth in the region despite external shocks.
“The positive news is we can depend on solid macroeconomic fundamentals to keep the Philippine economy moving along its path of robust growth. Without any significant shock, I believe we are poised to extend our streak of 72 quarters of uniterrupted GDP growth in the Philippines,” Tetangco said.
The economy has been expanding since the first quarter of 1999 for a total of 18 years, according to Tetangco. The growth in the country’s gross domestic product accelerated to 6.9 percent last year from 5.9 percent in 2015 due to one-off boost from election related spending translating to robust private consumption as well as higher investment growth.
This was the fastest in the region, beating China’s 6.7 percent, Vietnam’s 6.2 percent, Indonesia’s five percent, Malaysia’s 4.2 percent, Thailand’s 3.2 percent, Singapore’s two percent, and Taiwan’s 1.4 percent.
In a separate press conference at its headquarters, IMF economic counsellor and director of the Research Department Maurice Obstfeld told visiting journalists the multilateral fund has upgraded its projections based on the April World Economic Outlook as it now expects the world economy to grow 3.5 instead of 3.4 percent this year and further to 3.6 percent next year from 3.1 percent last year.
Obstfeld said the acceleration would be broad based across advanced, emerging, and low-income economies, building on gains seen in both manufacturing and trade.
He added the revised projections resulted from improvements coming primarily from good economic news for Europe and Asia as well as the continuing expectation or higher growth in the US this year.
“We welcome the Fund’s assessment that global growth is gaining momentum. We are encouraged by the early signs of higher growth prospects in advanced economies as well as that growth in emerging market economies, including the Philippines, will remain strong in the near term,” Tetangco told The STAR.
The IMF expects growth for the Philippine economy to remain robust at 6.8 percent this year and 6.9 percent next year on the back of the strong recovery in the country’s export sector. This would still be faster than China’s 6.6 percent, Vietnam’s 6.5 percent, Indonesia’s 5.1 percent, Malaysia’s 4.5 percent, Thailand’s three percent, Singapore’s 2.2 percent, and Taiwan’s 1.7 percent.
The IMF, however, reiterated the world economy still faces headwinds as trend productivity growth remains subdued across the world together with other downside risks such as uncertainties of macroeconomic policies with the normalization of interest rates in the US as well as the political movements skeptical of international economic integration.
Tetangco said the Philippines has achieved a sustained growth in output amid lower and stable inflation environment as it has now more diversified domestic sources of growth that should serve as significant buffers against exogenous shocks that could weaken external demand for export oriented sectors
“Our macroecomic fundamentals have remained strong and these gives us enough buffers to ward off the challenges caused by the difficult external environment,” he said.
Just like in overseas, Tetangco said local political noise could be a manifestation that the benefits of growth may not yet have trickled down fairly to all sectors of society.
However, he explained the Philippines has made noteworthy progress in spreading the impact of higher growth amid improved labor and employment conditions.
The BSP made an operational adjustment on key policy rates in June last year after it introduced the interest rate corridor (IRC) frameworks aimed at bringing market rates closer to policy rates for a more effective monetary policy transmission.
The country’s inflation remained manageable averaging 1.8 percent last year from 1.4 percent in 2014 amid the sharp recovery in oil prices and elevated food prices. This was below the BSP target of two to four percent between 2016 and 2020.
February inflation picked up to a 27-month high of 3.4 percent from 3.3 percent in January and is expected to rise until the third quarter of the year but would still be within the BSP target. Inflation is expected to average 3.4 percent this year before easing to three percent next year.
Tetangco is attending his last Spring Meetings of the IMF and the World Bank Group as BSP chief as he is scheduled to step down on July 2 after serving an unprecedented 12-year term.
“As you know this is going to be my last attendance to the IMF-World Bank Spring Meetings as BSP governor. In 76 days (Manila time) my tour of duty ends. I see this lecture therefore as an opportunity to share my thoughts on the global outlook and risks, their implications for the Philippine economy and the challenges that we now face,” Tetangco said.