PH to grow 6-7% this year as gov’t, households resume spending binge

The Philippine economy can still grow by as much as 7 percent this year thanks to the ramping up of government spending in the second semester, according the country’s central bank chief.

Speaking to investors and analysts during an online UBS forum, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the lower inflation rate—brought under control earlier this year following a nine-year high spike in 2018—was 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 [gross domestic product] 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 as government spending was hobbled by the delay in the passage of the national budget by a deadlocked Congress.

Meanwhile, debt watcher Moody’s cautioned second quarter growth might also be adversely affected by the El Niño dry spell and the global slowdown brought about by US-China trade tensions.

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

This 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 the 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 liquidity, but decided to pause last month after a surprise spike in that month’s inflation rate.

The central bank chief had hinted authorities were ready to resume monetary easing after the consumer price index resumed its downtrend last month.