Stagflation risk

PHILIPPINES - In Brief 28 Apr 2022 by Romeo Bernardo

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Even as the IMF warned of stagflation risk for Asia, economic managers are happily taking note of the multilateral agency’s rosier outlook for the Philippines. In its latest World Economic Outlook, the IMF nudged up its GDP forecast for country this year from 6.3% to 6.5%.Although the adjustment may seem minimal, it is noteworthy given substantial cuts in GDP forecasts for the world (from 4.4% to 3.6%), for emerging and developing Asia (from 5.9% to 5.4%) and for ASEAN (from 5.6% to 5.3%). Per reports, the improved outlook for the Philippines mainly reflects expectations of broader recovery in economic activity following the removal of covid-related restrictions. For example, latest tourism data show that tourist arrivals since the opening of international borders in February are close to doubling 2021’s full year level.[1] Expansion of still limited face to face classes in schools is also expected to add to economic activity.The Philippine upgrade suggests that the IMF weighed the expected expansion in domestic demand higher than the spillovers from: (1) the war in Ukraine that has led to higher fuel and food costs and is expected to lead to slower European growth, (2) US monetary tightening that will add to tighter global financial conditions, and (3) further deceleration in China’s economic growth due to its zero-covid policy that could also disrupt trade and supply chains. In part, we think this reflects the country’s relatively smaller export sector.[2]At the same time, the IMF’s forecasts for Philippine inflation, i.e., 4.3% this year and 3.7% next year, are also relatively benign notwithstanding the country’s reliance on imported fuels (oil and coal) which are p...