The fastest inflation in almost a decade in 2018 has started to moderate and isn’t expected to are up this year, says expert
MANILA • Philippine economic growth which weakened to a three-year low in 2018 will rebound this year, boosted by spending for the May midterm elections and helped by moderating prices, the nation’s chief economist said.
“With the declining inflation, domestic demand will strengthen,” Economic Planning secretary Ernesto Pernia said in an interview in his office last Friday. Hitting the low-end of the 7% to 8% growth target this year is “good enough” and can be done, he said.
The fastest inflation in almost a decade in 2018 has started to moderate and isn’t expected to flare up this year, Pernia said. Accelerating prices held back growth and prompted the central bank to deliver one of Asia’s most aggressive rate hike cycles last year. GDP expanded 6.2% in 2018, the weakest pace since 2015.
Spending for the midterm elections on May 13, when more than 18,000 national and local positions are up for grabs including half the 24-member Senate, can add one to two percentage points to this year’s GDP expansion, Pernia said.
The five elections in the past 14 years showed a spike in growth as politicians spent on food and drinks, transportation and mobile phones on the campaign trail. GDP growth jumped to 7.6% in 2010, the year Benigno Aquino won the presidency and was at 7.1% in 2013. Those were
the fastest growth rates since 1976. Standard Chartered plc is betting on a recovery in household spending and investment this year. That’s good news for a nation where consumption accounts for 70% of the economy. Not everyone is convinced.
“Risks are mounting for a continued slowdown,” Noelan Arbis, Hong Kong-based economist at HSBC Holdings plc, said after last Thursday’s GDP report. The government could crowd out private investment amid tighter money supply and prompt the central bank to loosen monetary policy, he said.
First-quarter growth will be hurt by the delay in this year’s budget approval, preventing the government from spending 46 billion pesos (RM3.61 billion), Finance Secretary Carlos Dominguez said last Friday.
There are no signs yet that the Philippine central bank will start easing monetary policy, although governor Nestor Espenilla said last Friday reductions in banks’ reserve requirement ratio will resume.
“We need to perk up the economy” and ramp up domestic demand to ward off risks including China’s slowdown and the uncertain direction of tariff negotiations, Pernia said.
The rollout of big infrastructure projects can resume with the expected approval next month of the 2019 budget, the economic chief said. Record spending on roads, railways and ports will enable the country to hit at least 7% growth in the last three years of President Rodrigo Duterte’s term, he said.
“I think I had used the word aspiration,” Pernia said about the prospects of meeting this year’s growth target, recalling remarks he made last Thursday. “But I think that sounds too weak. We will do it.” — Bloomberg