PH to grow 6-7% this year as gov’t, household spending ramps up

The Philippine economy is still on track of hitting a growth rate of as much as 7 percent in 2019 thanks to a spike in government spending in the second half of the year and even with slower gross domestic product expansion in the first quarter, according to the head of the Bangko Sentral ng Pilipinas (BSP).

Speaking to investors and analysts at an online UBS forum, BSP Governor Benjamin Diokno said the lower inflation rate — brought under control earlier this year, after the nine year-high spike in 2018 — is also encouraging more Filipinos to help boost growth through increased household spending.

“Prospects for the Philippine economy continue to be favorable,” he said. “Despite the lower-than-expected growth in the first quarter of 2019, we remain optimistic about meeting the GDP growth target of 6-7 percent for this year.”

“We expect that the government’s commitment to accelerate public spending will take the driver’s seat on the supply side, while household spending, supported mainly by cooling inflation and remittance inflows, will spur growth on the demand side,” Diokno added.

The Philippine economy grew by only 5.6 percent in the first quarter of 2019 as government spending was hobbled by the delay in the passage of the national budget by a deadlocked Congress. Debt watcher Moody’s cautioned that second quarter growth may also be adversely affected by the El Niño and the global slowdown brought by US-China trade tensions.

The central bank chief, however, said there was cause for optimism among investors in the Philippines because the country’s economy was “firing on all cylinders”.

The growth momentum will likely receive a boost from Diokno’s own preference for monetary easing which will likely resume after the latest monthly data revealed that the pace of consumer price increases has resumed its downward trek.

“With inflation slowing again in June, the BSP Governor has sounded off on potential rate cuts in the near term, even hinting that the [overnight borrowing rate] cut will likely come before a further reduction in reserve requirements,” ING Bank Manila senior economist Nicholas Mapa said in an email to media.

“With the last installment of the latest reserve requirement reduction scheduled for end of July, we expect the BSP to gauge the effect of this additional liquidity into the financial system before making additional adjustments on this front,” he added.

The BSP implemented a 25-basis point rate cut in early May as part of Diokno’s drive to feed the growing Philippine economy with more cash, but decided to pause last month after a surprise spike in that month’s inflation rate.

The central bank chief has hinted that authorities are ready to resume monetary easing after the consumer price index resumed its downtrend last month. /tsb