Inflation a big challenge to sustain Q1 growth

WHILE the first-quarter economic growth logged an impressive start for the year, inflation remains the biggest challenge in sustaining the strong economic growth.

At the sidelines of the launching of the Cebu Business Month 2022, Cebu Chamber of Commerce and Industry president Charles Kenneth Co said inflation remains to be a concern, especially regarding food and those affected by the Ukraine supply like flour, fertilizers, and some steel products in maximizing the country’s economic recovery.

“I don’t know if the next quarter will be as strong as the first quarter but as long as it stays positive it is still good. We don’t want to grow too fast because inflation is a big concern,” said Co.

The ongoing Ukraine-Russia war has continued to fan the flames of global inflation.

The Philippines grew 8.3 percent in the first quarter this year, beating economic experts’ forecast of 6.7 percent. It was buoyed by the reopening of the economy after two years of various stages of lockdowns.

“We’ve now seen the revenge spending and revenge tourism, people going out. There’s a pentup demand so that’s a good sign,” said Co.

Mobility, confidence

“The movement and of people in public places was back to pre-pandemic level in most of the first quarter as people were more confident to go out given the increasing vaccination rate of the country and the decline in Covid cases. Aside from these, the election campaign season that started in February also contributed to the mobility gains. As a result, economic activity had a strong recovery during the quarter,” said BPI lead economist Jun Neri said in a statement.

“If the current growth momentum is sustained, the economic output of the country will likely return to pre-pandemic level by the second quarter of 2022,” he added.

Central bank Gov. Benjamin Diokno said the 8.3 percent gross domestic product (GDP) growth in the first quarter of 2022 is further confirmation of the Philippine economy’s resilience which was achieved by a whole-of-government approach, which required bold and decisive fiscal and monetary actions to remain in sync.

“On the monetary side, the historic-low key policy rate has supported credit activities, while our time-bound regulatory and operational relief measures allowed banks to continue performing the important role of financial intermediation throughout the pandemic,” Diokno said.

“The robust growth performance of the economy in the first quarter, which beat analysts’ expectations, along with other favorable macroeconomic indicators, helps fulfill the BSP’s vision of a post-Covid Philippine economy that is stronger, more technologically advanced, more inclusive and more sustainable,” he added.

Headwinds

Looking ahead, Neri said they expect a faster recovery assuming a new Covid variant doesn’t materialize. He said high contact services will likely catch up to the other sectors of the economy in this scenario. Moreover, the experience of the past five months has shown that consumers are now more comfortable engaging in face-to-face economic transactions despite the continued presence of Covid-19.

Neri also expects a faster growth rate for investment spending given the rising demand from consumers. Businesses will likely invest more in the expansion of their capacity in order to meet the demand.

“However, other headwinds like inflation, rising interest rates and supply chain issues may prevent the economy from maximizing this recovery. So far, pent-up demand has offset the impact of inflation, but a prolonged period of elevated prices may eventually hurt consumer confidence. We continue to expect a 7.3 percent full-year growth for the economy this year given the latest GDP print, but this may go down to six percent depending on the behavior of oil prices for the rest of the year,” the economist said. /