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Economy poised for 2019 comeback

Bangko Sentral officials say risks to inflation outlook ‘evenly balanced’
By: - Reporter / @daxinq
/ 05:14 AM January 21, 2019

Policymakers expect the country’s economic growth in the fourth quarter of 2018 to be capped by measures the government implemented to bring inflation under control—moves that ultimately affected market sentiment, the central bank said.

At the same time, however, the Bangko Sentral ng Pilipinas expressed optimism that the subsiding threat of runaway prices of goods and services would help stabilize consumer and business sentiment coming into 2019.

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In its latest quarterly inflation report, the Bangko Sentral ng Pilipinas noted that domestic demand indicators late last year pointed to “less robust market sentiment,” including a weakening trajectory of real gross domestic product (GDP) growth from the second to the third quarters.

“High-frequency indicators of domestic activity continued to present mixed signals,” the central bank said.

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It noted that the composite purchasing managers’ index — a key indicator of health for the manufacturing and service industries — “stayed firmly above the 50-point expansion threshold, pointing to sustained expansion across all sectors.”

Capacity utilization for the manufacturing sector showed that more than half of major manufacturing sectors operate at above 80 percent, while energy sales accelerated.

“However, vehicle sales contracted, business outlook turned less optimistic, and consumer confidence weakened during the quarter,” the BSP said.

The central bank also noted that the weak global growth continued to pose a threat to the Philippines, which depends heavily on intermediate and finished goods exports to more advanced economies.

“Aggregate growth in emerging Asian economies also decreased as new orders improved only marginally while export orders declined amid weaker foreign demand,” the BSP report said.

It noted, however, that the domestic financial system remained healthy, with developments in the fourth quarter of 2018 reflecting the volatility arising mainly from the external environment.

Going forward, central bank officials described the risks to the country’s inflation outlook as “evenly balanced,” given that a new round of excise tax increases for fuel came into effect on Jan. 1.

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In a briefing, BSP’s Department of Economic Research director Dennis Lapid said the slowing inflation momentum in December for both food and nonfood inflation “gives the central bank some latitude to allow its monetary policy adjustments throughout 2018 to work their way through the economy” — an indication that the Monetary Board has shifted to a wait-and-see stance vis-a-vis the direction of domestic interest rates over the near term.

The Monetary Board noted that the latest inflation forecasts showed a lower path over the policy horizon, with inflation settling within the target band of 3 percent, plus or minus 1 percent for 2019-2020.

“Recent headline inflation readings indicated signs of receding price pressures as constraints on food supply continued to ease with the implementation of various nonmonetary measures,” Lapid said. “Inflation expectations had also steadied given the decline in international crude oil prices and the stabilization of the peso.”

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TAGS: Business, economy, Inflation
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