PH can drive a ‘sports car’
or lower, which was in contrast to the mainstream view that the BSP would likely keep its overnight borrowing rate steady at 4.5 percent for the rest of the year. The BSP has slashed its key rates by 50 basis points earlier this year.
“These policies combined with efforts to increase our overall competitiveness can help the Philippines finally prove to the world that it has never been a ‘jeepney economy’ all these years but may have instead been a ‘race car’ all along—except that this time—it’s not about to run out of gas,” the research said.
The research noted that the domestic economy has managed to maintain a strong external position while growing above 6 percent. It said this meant that the Philippines was not about to overheat in the same fashion that it did in the 1980s and the 1990s when the root cause of sharp economic slowdowns and contractions were widen- ing current account deficits and balance of payments (BOP) problems.
The BPI research said these observations also seemed to suggest that faster growth might not necessarily result in “demand pull” inflation given the large surplus of the labor force, which could lead to a slower increase in Philippine wages compared to nations with tighter labor supply.
“Demand pull” inflation occurs when consumer prices rise because demand is greater than supply or more commonly described as when there is “too much money chasing too few goods.”
The research noted that the Philippines was previously given the moniker “the jeepney economy,” in reference to its sub-par historical growth performance and extreme susceptibility to “overheating” or building inflationary pressures even at the slightest acceleration in gross domestic product (GDP).
When the 6.4-percent Philippine GDP growth rate for the first quarter was announced last May, it noted that a majority of conventional theorists concluded that the Philippines need not cut interest rates further despite headline inflation persistently ranging below the BSP’s 3-5 percent inflation target.
But aside from avoiding the usual contractions that historically followed six straight years of growth, the Philippines has broken the trend and managed to actually grow for 13 straight years since 1999.
On the other hand, it noted that Philippine economic growth prior to four contraction episodes in the past was always funded through leverage, which ultimately led to a sizeable buildup in external liabilities and the economy’s susceptibility to sudden stops in foreign capital flows. July 15, 2012 Country United States Japan United Kingdom Hong Kong Switzerland Canada Singapore Australia Bahrain Saudi Arabia Brunei Indonesia Thailand UAE EU Korea China Denmark India Malaysia New Zealand Sweden Taiwan