Low inflation to lift GDP, DoF says

Local economy needs to grow by 6.4 percent in the second half to hit the low end of the target 6 to 7 percent growth this year.

Higher US tariffs notwithstanding, a freighter loaded with containers sails off the port of Hong Kong. AFP

The sub-1 percent inflation print in September helps make it easier for the economy to reaccelerate and achieve growth as high as 7 percent this year.

This was learned over the weekend from the Department of Finance (DoF) whose officials said below-target inflation could trigger events that allow agencies as the Bangko Sentral ng Pilipinas (BSP) to make appropriate policy action, for example.

“The continuing drop in inflation has given the monetary authorities policy room to loosen liquidity, enabling a cut (to) the policy rate by another 25 basis points,” the DoF said.

“This, plus a strong fiscal position coupled with efficient implementation of the catch-up spending program, will boost economic growth in the last quarter of the year,” the agency added.

Earlier, local output expansion measured as the gross domestic product (GDP) in the first and second quarters of the year slowed to only 5.6 percent and 5.5 percent, respectively, or growth averaging only 5.5 percent in the first half. The expectation was growth averaging 6 or 7 percent.

According to the DoF, the 0.9 inflation in September brought the average inflation in the first three quarters to 2.8 percent, well within the government target of 2 to 4 percent.

Also, the DoF said assuming month-on-month price increase is capped at 0.2 percent, monthly inflation will still be below 1 percent before making upward corrections in the last two months of the year.

Earlier, Socioeconomic Planning Secretary Ernesto Pernia said the local economy needs to grow by 6.4 percent in the second half to hit the low end of the target 6 to 7 percent growth this year.

Sovereign debt watcher S&P Global Ratings consequently affirmed the country’s growth path owing to the government’s catch-up plan on spending for infrastructure.

“The second half of this year could see some acceleration in growth to bring the overall figure to 6 percent for 2019, largely driven by a significant ramp-up in public investment as the government tries to catch up with its infrastructure plans,” S&P said.

Likewise, ING Bank senior economist Nicholas Mapa maintained his earlier forecast of 6 percent GDP grwth this year, noting the significant contribution that household consumption brings to the growth brew.

“Household spending accounts for roughly two-thirds of the economy and should it crest seven percent on its own, we can hopefully see a better performance while government spending and capital formation catches up,” Mapa said.