The Bangko Sentral ng Pilipinas expects consumption to remain the economy’s key growth driver and investments to pick up over the short to medium term given the low inflation environment.
BSP Deputy Governor Diwa Guinigundo said that benign inflation was expected to persist at least until 2013, and this was expected to continue encouraging Filipino households to spend.
He said that based on the latest estimates of the BSP, inflation might average 4.46 percent this year. The rate is seen to slow down to 3.05 percent next year and to 3 percent in 2013.
The estimates are within the official inflation target of between 3 and 5 percent.
“The importance of inflation being under control is that it will not impinge on consumption expenditure. Therefore, we can expect consumption to continue driving economic growth,” Guinigundo said in a press conference last week.
According to latest inflation report by the National Statistics Office, inflation averaged 4.3 percent in the first nine months of this year.
Consumption has been the key driver of the economy over the past years, compensating for the slow inflow of foreign direct investments.
The Philippines has lagged behind other emerging markets in the region as far as enticing FDIs is concerned, and economists blame this on various factors, including difficulty in setting up a business in the country given the numerous documentary requirements and tedious processes, as well as poor infrastructure.
Despite anemic investments, the Philippines has managed to sustain growth over the years, even avoiding a recession in 2009 and this was attributed to strong consumption.
Guinigundo said that in the next few years, investments were expected to continue picking up and increase their contribution to the economy.
He said benign inflation and expectations that it would remain as such in the next few years should also encourage businesses to invest more.
“If inflation continues to be at its present benign level, we can also see some investment recovery. Both domestic and foreign investments are expected to make growth in the Philippines more sustainable,” Guinigundo said.
Currently, capital formation accounts for just about 20 percent of the economy’s output.
In the first half of this year, the economy grew by 4 percent from a year ago. This was a deceleration from the over 8 percent last year.
Economic managers blamed this partly on the ill effects of the anemic global economy, which dragged the Philippines’ export income.
Over the medium term, the government is hoping that economy would post a sustainable 7- to 8-percent annual growth.
Guinigundo said the inflation environment in the country was supportive of the growth goal.