IMF tempers global outlook but upgrades that for PH

DAVOS, Switzerland—The International Monetary Fund has tempered its outlook on the global economy for 2013, which the institution sees as a “make-or-break” year likely fraught with a fragile economic recovery and high uncertainties.

But in spite of the cautious global economic outlook painted by IMF managing director Christine Lagarde during the World Economic Forum annual meetings here, the Philippines is one of the few economies that obtained an upgrade in economic outlook. The IMF now sees the Philippines growing by 6 percent this year and 5.5 percent next year, much higher than the 4.8 percent earlier forecast by the fund for both years.

On the other hand, the IMF now expects the global economy to expand by 3.5 percent this year, 0.1 percent slower than the multilateral institution’s forecast late last year but better than the 3.2 percent estimated growth for last year.

IMF’s latest growth forecast for the Philippines is seen outperforming the average growth of 5.5 percent this year and 5.7 percent next year for the Southeast Asian bloc.

Lagarde said in an address to the WEF annual meeting that due to policy actions taken over the past year, the global economy had seen some respite and stabilization in financial conditions.

“But it is not all good news. The recovery is still weak, and uncertainty is still high…. The short-term pressures might have alleviated, but the longer-term pressures are still with us,” Lagarde said. “As I have said recently, and it bears repeating: we have avoided collapse, but we need to guard against any relapse. 2013 will be a make-or-break year. We all know the imperative—keep up the momentum on the policy actions needed to put uncertainty to rest.”

Lagarde was scheduled to meet with President Aquino Thursday afternoon (close to midnight in Manila) on the sidelines of the WEF, which the Philippine President is attending for the first time. Apart from sharing the Philippine growth and good governance story, Communications Secretary Ramon Carandang said this would be an opportunity for the Philippine delegation to pick the brains of global leaders like Lagarde on global prospects.

In a separate statement by the IMF mission to the Philippines, the Fund said the Philippines’ growth resilience and more favorable outlook was both a testament to the improved macroeconomic fundamentals, policy reforms and a reflection of the exceptional global setting.

“The focus on good governance has buoyed confidence and is supportive of more-inclusive growth. In addition, growth in the Philippines has been supported by unusually accommodative monetary policies in major advanced economies that are spilling over to domestic financial conditions,” the statement said.

In a dialogue with WEF founder and chairman emeritus Klaus Schwab, the IMF chief said while the expected pace of expansion in 2013 was not huge, “it’s positive and the key thing is to keep the momentum.”

For the euro area, Lagarde said, this meant making firewalls operational; pushing ahead with banking union; continuing with the difficult but necessary fiscal adjustment at the country level; and supporting demand, especially with further monetary easing.

For the United States, she said, this meant pulling together in the national interest and avoiding further avoidable policy mistakes, such as failing to agree on increasing the debt ceiling—and, for the United States and Japan, reaching agreement on medium-term debt reduction.

For the emerging and developing economies, Lagarde said, this meant faring better despite their concerns about continued turmoil and lack of decisive action in the advanced economies, conditions differ greatly. “Some are more vulnerable than others, but they need to rebuild the policy space that has been used up in alleviating the crisis in recent times,” she said.

Taking a broader view in Davos, Lagarde urged the global economy to be conscious of the “megatrends” shaping the future.

First, she said, the global community must recognize the growing demand for individual empowerment, including for women, and a growing sense of a single global community.

Second, she noted a reallocation of political and economic power across the world. “By 2025, for example, two-thirds of the world’s population will live in Asia. This can lead to greater cooperation or to greater tension and competition,” she said.

Third, she noted a seismic shift in demographics, as the “youth bulge” in various emerging regions rubs up against the “graying” populations elsewhere. She pointed out that 60 percent of the population in the Middle East and North Africa is under 30, and for sub-Saharan Africa, 70 percent. This, she said, was “either a great opportunity or a source of instability.”

Fourth, she noted an increasing vulnerability from resource scarcity and climate change, with the potential for major social and economic disruption. “This is the real wild card in the pack,” she said.