INFLATION, GROWTH DRIVERS, RISKS
The general increase in prices of goods and services used by Philippine households is expected to remain supportive of economic growth.
ADB sees Philippine inflation picking up from 2016’s 1.8% to 3.5% this year on “rising international prices for oil” and 3.7% in 2018 that compare to the Bangko Sentral ng Pilipinas’ downgraded forecast full-year averages of 3.4% and 3.0%, respectively, and 2-4% target range for both years.
Philippine inflation picked up to a nearly- two- and- a- half-year- high 3.4% last month from 3.3% in February and the 1.1% recorded in March last year. The resulting 3.2% firstquarter average is lower than the central bank’s downgraded 3.4% forecast average for the entire 2017.
“As inflation approaches the upper end of the central bank target range of 2-4%, monetary policy will aim to strike a balance between supporting growth and containing inflation,” ADB said in its report.
“The central bank will have to factor into this delicate balance the future course of US interest rates,” it added; hence, “[a] measured hike in the central bank policy rate is likely.”
ADB also explained that GDP growth will likely ease to 6.4% in 2017, partly on “rising commodity prices that could affect domestic demand”.
“Growth is expected to recover to 6.6% in 2018 because the government plans to further ramp up public infrastructure investment as well as second-round effects of fiscal spending in 2017,” ADB Principal Country Specialist Joven Z. Balbosa said in a press conference at the ADB headquarters in Mandaluyong City on Thursday.
“Key drivers that what we are seeing in 2016 are the same things moving forward.”
The administration of President Rodrigo R. Duterte, who took office at noon of June 30 last year and who steps down on the same date in 2022, hopes to spur economic growth on to a faster lane and lift more Filipinos out of poverty besides.
The administration plans to increase spending on infrastructure to an equivalent of 7.1% of GDP by 2022 from a programmed 4.3% of GDP in 2015 and from 1.8% in 2010, according to the December issue of EconomyPH of the government’s Investor Relations Office. This year’s P3.35-trillion national budget programs spending on public infrastructure to increase 13.79% to P860.7 billion equivalent to 5.4% of GDP in 2017 from P756.4 billion, or 5.1% of GDP, in 2016. The administration expects to spend up to P9 trillion from 2017 to 2022 to plug the country’s infrastructure gap.
Private consumption, ADB added, “will continue to rise robustly, though at a moderate pace than last year.”
ADB Senior Economist Arief Ramayandi said in yesterday’s briefing that “[m]ost of the risks are basically coming from policy directions from the advanced economies…”
“The Philippine economy situation is pretty much the same: risks come from outside the Philippines. One is the US interest rate increase,” he said, referring to up to two more hikes by the US Federal Reserve that are widely expected this year following 25-basis point increases each in December 2015 and 2016, as well as last month, after nearly a decade of near-zero levels. —