SUSTAINING THE LEAD WITH SOLID FOOTING

Third, and perhaps the most important argument, the country’s macroeconomic fundamentals have remained solid and robust for the past 18 years. This growth story of 75 consecutive quarters demonstrates how income and economic growth does not have to come as magic.

There could be a clear case of overheating if such growth comes with surging price movements. But in the case of the Philippines, growth has been accompanied by a benign inflation environment. Inflation ( headline, core and alternative measures) remains close to the midpoint of target range in 2017 while inflation projections show annual average inflation settling within the target range of 3% ± 1.0 percentage until 2019. It is also important to emphasize that while we see risks to inflation such as the impact of the impending tax increase, both the outlook and expectations continue to be well-anchored to the inflation target over the policy horizon.

These macroeconomic improvements have not been lost to third party analysts including credit rating agencies which have upgraded the Philippines to investment grade on account of such achievement. Government is committed to continue strengthening institutions, promoting greater transparency and enhancing competitiveness.

We must also make the point that the inflation rate for the bottom 30% of the population has trended lower than the overall headline inflation.

Poverty incidence, based on the statistics compiled by the Philippine Statistics Authority, has also illustrated that rapid economic growth has started to benefit the middle income and the poorer segments of society. Indeed, high real GDP goes beyond media, it is something that can be eaten and enjoyed; it is both enabling and empowering.

The current economic performance is, therefore, not a product

BEATING THE HEAT BY EXPANDING CAPACITY

Fourth, in combination with the improving macroeconomic environment, the structural reforms we have pursued have indeed been translated into higher potential output for the economy. The country’s potential output has recently risen to 6-7% following: i) the recent climb in economic efficiency as indicated by the declining incremental output ratio; ii) increasing total factor productivity; and iii) favorable labor market dynamics given the young population and improvements in the education and skill sets of those in the labor force. Moreover, with the recent policy of the government to strengthen both hard and soft infrastructures, the country’s potential output could definitely further increase.

WHEN WORRYING IS A GOOD THING

In view of these arguments, overheating concerns may indeed be misplaced. Nonetheless, these concerns are not necessarily bad. In fact, policy makers are paid to always worry about the economy.

Sustaining the lead and beating the heat require us to remain watchful and attentive. There can be no room for complacency or benign neglect. We have a stable of analytical tools, early warning systems, and stress tests that should be useful to guide us when to move the lever of monetary policy if the risks are widely spread or deploy macroprudential measures to deal with sectorspecific concerns.

It’s not bad to be exuberant but we should remain rational.