By Melissa Luz T. Lopez,
Senior Reporter

UPBEAT manufacturing activity coupled with increased government spending provide assurances that the Philippines’ growth momentum will be sustained, the Bangko Sentral ng Pilipinas (BSP) said in deciding to keep policy rates steady last month.

“High-frequency indicators supported the continued positive outlook for domestic demand,” read the minutes of the BSP’s Nov. 9 policy meeting. “Increased fiscal spending is likewise expected to boost economic activity and support the growth momentum.”

The policy-setting Monetary Board kept benchmark borrowing rates unchanged last month, citing manageable inflation and robust domestic activity which render current policy settings appropriate.

The central bank kept the key policy rate at 3%, with the interest rate corridor spread remaining at 2.5-3.5%. Reserve requirement ratios were also maintained.

In particular, the BSP took the view that factory output continues to be robust, as reflected in the strong Purchasing Managers Index (PMI) readings logged during recent months.

The seasonally adjusted Nikkei Philippines Manufacturing PMI picked up to 54.8 in November from 53.7 the previous month, the highest score so far this year amid production expansion and new orders. Factories also operated at near-full capacity, the BSP said.

A PMI reading above 50 suggests increased activity, while a score below that signals a decline. In particular, strong economic conditions, promotional activity and greater client demand sustained the rapid growth in product orders.

Meanwhile, the country’s budget gap widened ninefold in October as public spending surged to an 11-month high, Treasury data showed, with the year-to-date deficit settling at P234.9 billion, compared with a P216-billion gap in the same period in 2016.

Gross domestic product (GDP) grew by 6.9% during the third quarter, beating market expectations as public spending surged. This brought the nine-month tally to 6.7%, close to the low end of the government’s 6.5-7.5% target band for 2017.

This year, the government is looking to spend P847.22 billion on public infrastructure projects, which will account for 5.3% of GDP. This forms part of the P8.44-trillion program until 2022, which will be supported by a mix of foreign grants, public-private partnerships, and government funding.

Economic managers expect growth to pick up in the coming quarters as more infrastructure projects are rolled out, with Finance Secretary Carlos G. Dominguez III betting on a “more riveting” pace during the last three months of the year as the Duterte administration embraces bigger investments.

By 2018, the government is targeting to expand the economy by 7-8% to keep the Philippines one of the fastest-growing in the region.

“[T]he outlook for domestic economic activity remained firm, supported by positive consumer and business sentiment and ample liquidity,” the BSP said.

Against this backdrop, price increases are expected to remain within target but are at risk of trending higher, the BSP said.

Higher taxes on goods as prescribed under the tax reform plan, coupled with petitions for transport fare and electricity rate increases, could hasten the pace of price movements, but could be offset by slower global economic growth.

Inflation has averaged 3.2% as of end-November after hitting a three-year peak at 3.5% in October to stay within expectations, and within the 2-4% target for the full year.

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