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Manila: The International Monetary Fund said on Sunday it had cut its 2008 economic growth forecast for the Philippines to 5.2 per cent from 5.8 per cent due to slowing external demand and softening consumption.
"Growth is expected to slow and inflation will likely remain elevated," a statement from an IMF team that visited Manila earlier this month said.
"Continued prudent macroeconomic policy management is needed to navigate through the challenging times ahead."
The IMF said inflation was likely to stay close to double-digit levels in the coming months but the central bank's monetary policy was appropriately hawkish.
Inflation hit a nine-year high of 9.6 per cent in May and central bank governor Amando Tetangco has said inflation may peak at 10-11 per cent in the third quarter with no let up in rising fuel and food prices.
Rate rise
The central bank raised its headline policy rates by 25 basis points this month, the first increase in nearly three years, and Tetangco said the economy could weather further interest rate rises that may be necessary.
The government said last month it expects economic growth to slow this year to 5.7-6.5 per cent, weaker than its earlier target of 6.3 to 7.0 per cent, after hitting a three-decade peak last year of 7.2 per cent.
Annual growth in the first quarter slowed to 5.2 per cent, well below expectations and down sharply from the previous quarter's 6.4 per cent expansion as rocketing inflation, a slowdown in the United States and the soaring cost of imported oil took their toll.
Anxious to support the economy, the Philippine government abandoned its goal of balancing the budget this year.
Manila now expects to post a budget deficit of as much as 75 billion pesos ($1.7 billion), or one per cent of gross domestic product, as it spends more on infrastructure and social services in a bid to pump prime the slowing economy.
But the IMF said the Philippines must protect its fiscal programme for 2009, when it expects to post a small budget deficit, to convince investors the country was committed to its fiscal consolidation programme.
"The mission is supportive of a targeted increase in pro-poor spending that may entail a modest fiscal deficit in 2008, but it is important to protect the 2009 fiscal programme," the statement said.
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