Economy not in danger of overheating — Pernia

MANILA, Philippines - The Philippine economy is not in danger of overheating as the country has plenty of headroom for inflation and businesses have not yet reached overcapacity, Socioeconomic Planning Secretary Ernesto Pernia said.

The International Monetary Fund (IMF) warned early this week of overheating risks for the domestic economy amid rapid credit growth and rising private and public investment.

Overheating occurs when production capacity cannot keep up with rising demand caused by growing wealth. This results in higher inflation that erodes purchasing power. 

Pernia said headline inflation is expected to be maintained within the target range of two to four percent for 2017 to 2018.

“We can keep our inflation within the target range for sure. We have a lot of headroom for inflation, the upper limit is four percent,” he said.

Businesses, he said, have also not reached overcapacity in terms of production.

“We are not over capacity  in terms of the economy. We have slack in terms of the growth potential of the economy. We are not hitting the limit yet,” said Pernia.

As of June, Philippine factories operate at the average capacity utilization rate of 83.8 percent, according to the Monthly Integrated Survey of Selected Industries conducted by the Philippine Statistics Authority (PSA).

NEDA expects the economy to grow faster in the second quarter of the year from the growth rate of 6.4 percent in the first quarter of the year on the back of increased government spending and improved exports and farm output.