Accommodative monetary policy supports Philippine economy — think tank

MANILA, Philippines — An accommodative monetary policy can be expected to support the Philippine economy this year in the face of external headwinds that include the worsening US-China trade war and rising oil prices, said London-based think tank Oxford Economics.

In a research brief issued Tuesday, the research firm said the country remains among emerging economies vulnerable to slowing global economic activity resulting from an escalating trade war between the world’s two largest economies.

As the Philippines is an oil importing country, its growth prospects are threatened by rising global oil prices, the result of US sanctions on Iran.

The firm noted that while the country’s economic growth slowed to 5.6 percent in the first quarter of the year amid delays in public spending, the enactment of this year’s national budget will provide support to the economy as export growth falters.

“With the budget impasse over, government spending and public construction are expected to pick up in the coming months and support growth,” the firm said.

With inflation finally falling within the target range, it expects the Bangko Sentral ng Pilipinas (BSP) to cut policy rates by a cumulative 50 basis points within the year.

The BSP has already slashed policy rates by 25 basis points early this month, after economic growth slowed to a four-year low.

“With inflation in target range, monetary policy is expected to become more accommodative,” Oxford Economics said.

The firm said the recent increases in US tariffs on Chinese goods have added downside risks to global growth which is already expected to slow down from 3.2 percent in 2018 to 2.7 percent this year and 2.8 percent in 2020.

US President Trump recently raised tariffs on $250 billion worth of Chinese imports to the US to 25 percent, a sign that the trade war between the world’s top two economies will not end soon.

As the US has also ended waivers on oil imports from Iran beginning this month, effectively stopping most countries in the world from buying Iranian oil and tightening global supply.

“Supply concerns across oil-exporting economies means the prospects of higher Brent prices is back on the cards, which would add a drag to global growth and make inflation spike,” the firm said.

It reiterated its earlier expectation of Brent crude prices reaching $100 per barrel by the end of 2019.

“The hardest-hit economies in 2020 are emerging markets such as the Philippines, China and India,” Oxford Economics said.