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Growth to stay above 6% in Q1 on spending, slower inflation

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By Melissa Luz T. Lopez, Senior Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) expects economic growth to remain above six percent this quarter, with the view that strong government spending will prop up domestic activity despite budget delays and as inflation slows.

“The Philippine economy is expected to continue to expand above its long-term growth trend in Q1 2019, supported by firm domestic demand amid the continued implementation of the government’s infrastructure program,” read the highlights of the Monetary Board’s rate-setting meeting last month.

This was the last policy meeting presided over by the late BSP Governor Nestor A. Espenilla, Jr., who passed away Feb. 23 after battling tongue cancer.

The bullish growth outlook coupled with a “more manageable” inflation rate led policy makers towards keeping the key rate steady at 4.75% and the interest rate corridor at the 4.25-5.25% spread, noting that these remain “appropriate” for now.

The Philippine economy grew by 6.1% during the fourth quarter of 2018, the slowest pace seen in three years. This pulled the full-year climb to 6.2%, well below the state’s 6.5-6.9% target.




However, the BSP is optimistic that the rapid growth pace will be sustained this year, as they count on the May 13 midterm elections for a “modest boost” during the first semester.

Strong fiscal spending — which grew 21% to hit P3.408 trillion in 2018 — is likewise expected to fuel expansion, with the state now armed with more funds to use for its priority programs and projects.

“Government proceeds from the oil excise tax hike that took effect starting January 2019 is also expected to help keep the fiscal program on track during the year, even as the re-enactment of the budget is expected to temporarily curtail government expenditures and disrupt procurement activities,” the BSP said.

To date, the P3.757-trillion national budget is yet to be signed into law by President Rodrigo R. Duterte, leaving new programs and infrastructure projects unfunded as the national government operates on a re-enacted budget.

The government is targeting a 7-8% growth goal this year, supported by nearly P1 trillion investments in big-ticket construction projects under the administration’s “Build, Build, Build” program.

Incidentally, former Budget Secretary Benjamin E. Diokno was sworn in as the fifth BSP governor on Wednesday night, who will serve the remaining four-year term of Mr. Espenilla which expires July 2023.

Mr. Diokno will lead his first rate-setting meeting on March 21. On Wednesday, he said he intends to continue the reform agenda of his predecessor but noted that there is room to “expedite” cuts in the reserve requirement ratio (RRR).

On interest rates, the new BSP chief said they will look at “timing” for possible rate cuts, but added that they might need more inflation data points before any adjustments.

BSP Deputy Governor Chuchi G. Fonacier said separately that there appears to be “more space” to cut rates, given February’s 3.8% print which marked a one-year low and a return to the 2-4% target band.

London-based Capital Economics said they expect a policy cut from the BSP by May, which would kick off the unwinding process for the 175 basis point rate increases unleashed in 2018.

Market watchers expect Mr. Diokno’s reign at the BSP to be marked by “pro-growth” measures, which they take to mean reductions in benchmark yields and the RRR.