The International Monetary Fund (IMF) has downscaled its economic growth forecast for the Philippines for 2008 to 5.2 percent from 5.8 percent citing rising consumer prices and the global economic slowdown. “The macroeconomic environment has become more challenging. The Philippines, together with its peers in the region, faces the twin challenges of a slowing global economy and escalating food and fuel prices,” the IMF said in a statement issued on Sunday. Manila has cut its economic growth target and ditched its goal of achieving a balanced budget this year due to the impact of a US-led global slowdown and soaring food and energy prices. It now expects gross domestic product to grow at a slower pace of between 5.7 percent to 6.5 percent in 2008 compared to the previous target of 6.3 percent to 7.0 percent. The government expects a deficit of 75 billion pesos ($1.7 billion) as it seeks to increase spending to support infrastructure and social services to ease the pain of consumers. The government has moved the target of achieving fiscal balance to 2010. Higher energy prices are expected to push Philippine inflation to double-digit levels going forward after a nine-year high reading in May, reinforcing expectations of further monetary tightening by the central bank. The central bank raised headline interest rates by 25 basis points earlier this month for the first time since 2005. “Inflation is expected to remain close to double digit levels in the coming months as the recent increases in food and fuel prices filter through to the consumer price index,” the IMF said. “To its credit, the Philippines maintains a largely deregulated oil sector which has allowed it to avoid the fiscal problems being faced by some other countries from fuel subsidies.” The IMF said the central bank's policy is “appropriately hawkish in a rapidly evolving environment.” “Signs of second round effects have emerged as core inflation has also risen, and the global commodity price hike increasingly appears as prolonged. Sustained high inflation can unseat inflation expectations and complicate macroeconomic management,” it said. The Philippines exited from an IMF post-program monitoring framework in 2006, but the two sides agreed to hold regular consultations on economic matters.
