Philippines economy far from overheating — DOF

MANILA, Philippines - A number of macroeconomic indicators signal that the Philippine economy is still far from overheating, Finance Secretary Carlos Dominguez said on Friday.

This is in response to concerns of Moody’s Investors Service, which said a number of metrics, as represented by rising inflation and the reemergence of a current account deficit, indicate material capacity constraints that signal a risk of overheating.

An overheating economy happens when growth becomes unsustainable, with productive capacity unable to meet demand, leading to higher inflation rate.

“There is ample evidence that the economy is far from overheating. Number one, the growth is only at 6.4 percent, slightly below our target of 6.5 to 7.5 percent range. Inflation is declining 3.1 percent in May, from 3.4 percent in April, and core inflation is declining from three percent in April to 2.9 percent in May,” Dominguez told reporters.

Dominguez cited the robust growth investments in the country, which grew 7.9 percent in the first quarter, faster than the 5.8 percent growth in household consumption during the period.

Dominguez said lending rates in the country also remains low, with rates for real estate loans being the second lowest in Southeast Asia. He said this implies that investible savings are available for lending.

“Balance of payment is strong. The deficit is only 1.7 percent of GDP, current account deficit is only 0.45 percent of GDP in the first quarter. During the Asian crisis the average current account deficit was four percent of GDP,” he said.

Lastly, Dominguez mentioned the national government’s fiscal deficit, which translated to 2.3 percent of GDP as of May, as well as the debt-to-GDP ratio, which went down to 43.6 percent in March from 45.9 percent in end-2016.

DOF Undersecretary Gil Beltran echoed Dominguez, saying the increasing investments in the country is improving capacity.

“We told them about trade, tax reform and of course we told them that investments are going up. The capacity of the country is growing with the increasing investment. So we don’t think there is going to be impact on inflation,” he said.

“As a matter of fact, for the latest estimates for June we are expecting further decline in inflation at 2.8 percent. Capacity constraints we don’t see it,” he added.

Aside from these pressures, Moody’s also cited domestic and international concerns which could dampen the growth prospects of the Philippines.

In particular, the credit watcher cited the “worsening” Islamist insurgency in the country, which could lead to the expansion of martial law, diminish domestic business confidence, and disrupt economic activity.