By Lee C. Chipongian
The central bank’s latest 2.6 percent inflation average forecast for 2019 has factored in a modest GDP growth assumption of six percent for the year, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
Easily, Diokno said the economy – with much catch-up public spending — can improve by as much as 6.5 percent in the second half of the year to get to the flat six percent growth.
“It’s six percent (growth) most likely for the full-year,” said Diokno. “That means 6.4 percent to 6.5 percent growth for the second semester.” He’s confident that this assumption is achievable.
Because of underspending as a result of the four-month budget impasse, the economy grew by a lower-than-expected 5.5 percent in the second quarter, it is a slower growth compared to 6.2 percent same time in 2018. It is slightly lower than 5.6 percent GDP growth in the first quarter this year.
For Diokno, the 5.5 percent second quarter growth is just a temporary “blip” and that “it won’t happen again.”
The Monetary Board, in its August 8 policy meeting, has assessed that the risks to the inflation outlook remains broadly balanced for both this year and in 2020, and that these risks will “tilt to the downside” in 2021.
“Weaker global economic prospects continue to temper the inflation outlook [while] the potential adverse effects of a prolonged El Niño episode to inflation have subsided,” said Diokno.
Domestically, the BSP said the outlook for growth continues to be firm on the back of a projected recovery in household spending and the accelerated implementation of the government’s infrastructure spending program, after the delay in expenditures due to the legislative impasse in the approval of the budget in January to April this year.
Diokno said that with benign inflation outlook, the Monetary Board moved to further cut policy rates by 25 basis points (bps) last August 8, its second rate cut after May 9’s similar 25 bps action, for a total of 50 bps so far. The market is expecting another 25 bps cut– at least – of interest rates reduction this year.