‘Cooling inflation crucial to growth goals’

MANILA, Philippines — The continued downtrend in inflation is crucial in boosting private consumption and public spending so as not to miss anew growth targets set by the government this year.

In a commentary, Manulife Investment Management and Trust Corp., a subsidiary of Canada-based insurance giant Manulife, said inflation risks remain even as the overall macroeconomic picture has improved.

Manulife head of equities Mark Canizares emphasized that inflation slowly going back to within the central bank’s target band would significantly boost consumer confidence and economic growth this year.

“But there remain key risks that we need to watch out for this year such as the potential increase in inflation due to food supply shocks coming from El Niño, geopolitical risks and overall global economic slowdown,” Canizares said.

The Bangko Sentral ng Pilipinas (BSP) is expecting that inflation further cooled for the fourth straight month in January, between 2.8 percent and 3.6 percent.

Inflation is also coming from a high base effect last year, while global economic slowdown due to elevated interest rates could bring commodity prices lower and translate into the domestic front.

In a statement following the 5.6 percent gross domestic product (GDP) growth in 2023, Finance Secretary Ralph Recto said the first order of business is to reduce emerging inflation to boost private spending.

“Ensuring that prices of goods remain stable and affordable is crucial to further grow the economy, consequently enabling us to boost revenue collection,” Recto said.

For 2024, the economic team is looking at a 6.5 to 7.5 percent GDP expansion, a downward revision in December last year amid risks to growth.

While the 5.6 percent GDP growth in 2023 outpaced major Asian economies and market expectations, it was below the six percent target of the government.

Manulife head of fixed income Jean de Castro, for her part, said the government can meet its target this year, although at the lower end of it.

“Should inflation continue to moderate, growth in household consumption might improve given the recent increase in minimum wage and decline in unemployment rate,” De Castro said.

“Growth in household consumption has been declining over the past year as high inflation erodes households’ purchasing power. Similarly, high interest rates also discouraged the private sector from borrowing, which has been dampening private investment,” she said.

On the side of the government, Recto said the administration would efficiently execute the record 2024 budget by ensuring the timely implementation of projects to avoid state underspending.

Budget Secretary Amenah Pangandaman maintained that this year’s budget is focused on priority projects that will stimulate the economy and achieve economic transformation, specifically in social services, agricultural development, and infrastructure expansion.