The International Monetary Fund (IMF) forecasts lower domestic gross domestic product (GDP) growth of 3.2 percent this year, revised down from its previous projection (in July) of 5.4 percent, citing inflation risks due to supply disruptions related to COVID-Delta variant outbreaks.
The IMF also cut its 2022 GDP growth forecast for the country to 6.3 percent from seven percent (July), based on the latest World Economic Outlook (WEO) report. Major factors for the revisions are vaccine rollout, policy support and financial conditions.
The IMF’s revised forecasts are lower than the government’s 4-5 percent GDP growth estimate for this year and 7-9 percent for 2022.
The IMF said some emerging market and developing economies such as the Philippines, are dealing with price pressures that are likely to persist due to continued high food and oil prices, and exchange rate depreciation.
The IMF forecasts domestic average inflation of 4.3 percent for this year, exceeding the government target of two-four percent, before gradually declining to three percent in 2022. Previously, it estimated a 4.2 percent average inflation for 2021.
The IMF said emerging and developing Asia is “downgraded slightly as the pandemic has picked up.”
“Pandemic-induced supply-demand mismatches could persist longer than expected, leading to sustained price pressures and rising inflation expectations. In response, a faster-than-anticipated monetary normalization in advanced economies could lead to a sudden tightening of global financial conditions,” said the IMF.
The IMF’s GDP growth forecast for ASEAN-5 is 2.9 percent for 2021 and 5.8 percent in 2022. For this year, Vietnam and Malaysia is expected to post the highest growth of 3.8 percent and 3.5 percent, respectively. Both the Philippines and Indonesia are expected to grow by 3.2 percent in 2021 while Thailand will likely grow by one percent.
The IMF has downgraded the global growth projection for 2021 to 5.9 percent for this year from an earlier estimate of six percent (July) and 4.9 percent in 2022. The lower global growth outlook is mainly due to projection downgrades to advanced economies and low-income developing countries’ growth prospects.
The revisions “masks large downgrades for some countries” particularly for low-income developing countries because of “dangerous divergence” in the economic prospects of different economies, primarily due to the uneven rollout of vaccinations across countries.
The IMF said the impact of pandemic outbreaks in the critical links of global supply chains “resulted in longer-than-expected supply disruptions, further feeding inflation in many countries, and (overall) risks to economic prospects have increased, and policy trade-offs have become more complex.”
The IMF also said that monetary policy will “need to walk a fine line between tackling inflation and financial risks and supporting the economic recovery.”
Because of the uncertainty in global inflation, the IMF said headline inflation will “likely return to pre-pandemic levels by mid-2022 for the group of advanced economies and emerging and developing economies.”
In the first six months of 2021, the country’s GDP growth stood at 3.7 percent. Before the global pandemic, the domestic economy has an annual growth average of between 6-7 percent. The GDP contracted by 9.57 percent in 2020 due to COVID-19. It was a still recession period in the first quarter this year with a GDP decline of 3.9 percent but in the second quarter, the economy expanded by 11.8 percent primarily because of base effects.
The Bangko Sentral ng Pilipinas (BSP) has kept the benchmark interest rate steady at two percent since November 2020, to support the recovery.
Despite the high inflation due to transitory factors, the BSP expects inflation to ease towards the midpoint of the two-four percent target in 2022 and 2023. The BSP forecasts an average 4.4 percent inflation for 2021 and 3.3 percent in 2022. It expects inflation to remain above the target for October before starting to decelerate below the target by November this year.