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Gov't adjusts GDP, inflation targets

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MANILA – The Philippine government's economic managers have announced the revision of some economic targets after factoring-in the impact of mostly external factors.


 This the Bangko Sentral ng Pilipinas (BSP) released a report last week stating that inflation for the third quarter reached 6.2 percent.


In a briefing last week, Budget and Management Secretary Benjamin Diokno and Finance Secretary Carlos Dominguez said the gross domestic product (GDP) target for 2018 was cut to 6.5-6.9 percent from the original 7 to 8 percent, which is also the target until 2022.


In the first half this year, growth, as measured by GDP, it grew by 6.3 percent, with the first quarter figure at 6.6 percent and the second quarter at 6 percent.


The slowdown was traced partly to the government’s policy decisions like the six-month closure of Boracay Island, which decelerated the growth of the services sector; the imposition of excise tax on non-metallic and metallic minerals; and the stricter enforcement of aquaculture regulations in Laguna de Bay.


Aside from the GDP target, the average inflation assumption for 2018 was changed to 4.8-5.2 percent from 4 to 4.5. For 2019, the assumption is 3 to 4 percent.


The inflation target for 2018-20 is a range between 2 to 4 percent.


A Bank of Philippine Islands official and economist, meanwhile, said the country’s inflation is expected to fall below the 4-percent level by the second half of 2019 due to the expected normalization of oil prices after peaking this quarter.


Emilio Neri Jr., Vice President and lead economist at the Bank of the Philippine Islands (BPI), said oil prices are projected to fall from today’s US$70 a barrel to US$60 to US$65.


Neri said the country recorded an inflation rate he dubbed “temporary faster” this year, triggered by the 44-percent increase of average oil prices for the first nine months of the year.


“Practically, we had an oil price shock this year that happens only every 10 years,” he said on the sidelines of Euromoney Philippines Investment Forum.


“Last time we saw it (oil price shock) was in 2008 and the same thing happened, even a higher inflation. So we are quite confident that next year it’s not gonna be here anymore,” he added.


The country’s inflation rate hit a nine-year high to 6.7 percent in September 2018 from 6.4 percent in the previous month, due mainly to higher food prices caused by supply disruptions following the onslaught of Typhoon Ompong.


Neri said inflation will increase probably close to 7 percent in October as oil prices went up through the month.


Economic managers of the Duterte administration revised their inflation forecast for 2018 to 4.8 to 5.2 percent from 4 to 4.5 percent, taking into account the impact of mostly external factors. For 2019, the assumption is 3 to 4 percent. 


Average assumption for Dubai crude oil price was changed to US$70-80 per barrel for this year, US$75-85 per barrel for 2019, US$70-80 per barrel for 2020, and US$65-75 per barrel for 2021-22.


During the Development Budget Coordination Committee (DBCC) meeting last July, the average assumption for Dubai crude is US$55-70 per barrel for 2018 and US$50-65 per barrel for 2019-22.


The peso-US dollar rate is seen to average this year at P52.5-53 from P50-53 previously. For 2019-22, the foreign exchange assumption is between P52-55.


Export growth target for this year was cut from 9 percent to 2 percent and the 2019’s from 9 percent to 6 percent.


This, as growth of exports, remains moderate amid the big jumps in imports as account for higher requirement by the domestic economy.


Diokno, who is also the chair of the DBCC, said the change in the exports assumption was due to base effects in 2017.


Also changed are the assumptions for the 364-day Treasury bill (T-bill) this year to 4.4-4.6 and the 2019-22 to 4.5-5.5 percent. These were previously at 3 to 4.5 percent.


Finance Secretary Carlos Dominguez III, during the same briefing, said these changes were made to reflect current situation such as the impact of trade war, which was not seen a few months back.


“We are confident that the Philippine economy will weather these storms abroad but we are not complacent. We are taking very deliberate actions to address the issues that we are facing,” he said.


In a statement, economic managers said measures to address the issue on the demand-side include increasing household consumption with rice tariffication, social mitigating measures, and policy interventions in the education and labor sectors.


Other measures include encouraging the entry of additional investments by accelerating the infrastructure programs and boosting exports through the full implementation of the Export Development Plan.


Supply side-focused measures include improvement of the agriculture sector by cultivating high-value crops, investments in the capacity and technology of manufacturing, and innovation in and timely implementation of construction projects.


Dominguez said the economic slowdown in the second quarter of this year was partly due to the smaller contribution by the agriculture sector, thus, the identification of measures to boost the sector.


“Again, we are facing new realities. Everybody in the world is facing new realities and we are fortunate that our economy is strong enough and resilient enough to overcome these difficulties,” he said.


Dominguez said the country's banking sector continues to be strong, and this is among the reasons why the economy remains resilient.


“We have a very high foreign exchange reserves. They are almost seven months of imports and we have an administration that is closely coordinating their fiscal policy with monetary policy so these issues will be addressed,” he added. 


Two weeks agao, Department of Trade and Industry (DTI) Secretary Ramon Lopez said the pace of increase in prices of goods and services month-on-month has already slowed down.


Although year-on-year inflation for September rose to 6.7 percent this 2018 from 3 percent in 2017, inflation last month grew by 0.3 percentage points from 6.4 percent in August of this year.


The 0.3-percentage point month-on-month increase in inflation in September was lower than the 0.7-percentage point hike from July and August, the 0.5-percentage point increment from June to July, and the 0.6-percentage point rise in inflation from May to June, based on data from the Philippine Statistics Authority (PSA).


“How we should look at this is this way: We all know that the inflation this year is higher than last year because of one common factor -- because of that high price of oil,” Lopez told reporters.


“What we should watch out for is the month-on-month. Is it improving or worsening? This month we are seeing is a 0.3 [percentage points] change,” he added.


Price index on transport, which is directly affected by rising oil prices, accelerated to 8 percent in September, PSA data showed.


Lopez noted that the insufficient supply of agricultural products also pumped the price pressures last month, particularly on food and non-alcoholic beverages index.


This was aggravated by Typhoon Ompong that brought about damage to agriculture, including facilities and infrastructure, to Php 26.8 billion.


The DTI chief, however, pointed out that the government does not turn a blind eye to the rising inflation.

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