Domestic consumption to recover in 2019 as inflation wanes — BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects domestic consumption to recover and provide better support to economic growth this year, assuring the public it will keep price pressures on a tighter leash this year.

In a text message, BSP Deputy Governor Diwa Guinigundo said the slowdown in gross domestic product (GDP) growth in 2018 was due mainly to dismal trade performance with imports still outpacing the growth in export.

Guinigundo also said that consumption, for the entire year of 2018, slowed down due to price pressures, even as public spending proved to be a strong driver for economic growth.

Nevertheless, the BSP official is still confident that domestic demand would strengthen in 2019, with inflation seen to continue its decline this year.

“We expect that domestic demand will recover and strengthen in 2019 with price pressures held on a tight leash, public spending being sustained despite the delay in the passage of the national budget and of course, investment should receive some boost with inflation coming down,” Guinigundo said.

Going forward, Guinigundo assured that the central bank’s “monetary policy will continue to be watchful of both price pressures and the liquidity needs to sustain economic activities.”

The Philippine economy’s growth slowed down to 6.2 percent in 2018, missing the government’s revised target of 6.5 percent to 6.9 percent. This is also slower than the 6.7 percent gross domestic product (GDP) growth seen in 2017.

Following the slower-than-expected gross domestic product (GDP) growth for 2018, economists from private banks reported varying outlook for the Philippine economy this year.

British banking giant HSBC, for one, sees economic growth slowing further in 2019, citing mounting downside risks, such as the reenacted budget.

The bank forecasts GDP growth to reach six percent in 2019, slower than the full-year growth of 6.2 percent for 2018.

“The first risk to growth is a continued impasse on the 2019 budget, which prevents the government from starting new projects and forces it to re-enact last year’s budget to fund government programs,” HSBC said, adding that the delay in the implementation of projects would weigh down the country’s first quarter GDP growth. 

“Nevertheless, we expect government consumption to recover in the latter half of the year, as the government continues to implement its expansionary fiscal agenda,” it said.

HSBC also warned of a potential decline in private investments, following the 175-basis point interest rate hike implemented by the Bangko Sentral ng Pilipinas (BSP) last year, as well as tighter liquidity conditions.

“In addition, the government is targeting a wider budget deficit this year, demanding more liquidity from the system. These factors could risk crowding out private investment and slowing growth,” it said.

To prevent this slowdown, HSBC said it expects the BSP to impose further monetary loosening this year, in the form of cuts in the reserve requirement ratio.

HSBC said the central bank is likely to cut RRR by as much as 300 basis points to 15 percent.