Europe stimulus positive for Philippines – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the decision of the European Central Bank (ECB) to further stimulate the region’s economy is positive for the Philippines.

BSP Deputy Governor Diwa Guinigundo said the decision of ECB to leave its ultra-loose monetary policy unchanged and at the same time keep the door open to more stimulus in December is expected to benefit the country.

“If it is going to be effective that means economic growth in Europe will gain more traction and that can translate to more investments in the Philippines. Because their interest rates will decline, so search for higher yield portfolio investments will come here,” he said.

Guinigundo explained the economic expansion in Europe is expected to slow down to 1.7 percent this year and 1.5 percent next year from two percent last year.

On the other hand, the economy of the US is seen recovering to 2.2 percent next year after slowing down to 1.6 percent this year from 2.6 percent in 2015.

“Well that is only consistent with modest output performance in Europe. I think it is the proper thing to do for Europe to sustain their policy for providing stimulus for their economy,” he said.

As part of efforts to boost inflation back to the target of just under two percent, ECB has slashed rates into negative territory and bought 80 billion euros worth of bonds each month. The central bank also offered banks free loans.

Guinigundo said the exports sector of the Philippines would also benefit from a stronger European economy.

“In terms of our exports, we will have stronger markets in Europe and as they also continue to improve on their output performance I think that is a positive for everyone,” Guinigundo said.

He explained the weak external trade of the Philippines continued to pull down the gross domestic product (GDP) growth.

Latest data showed the country’s GDP growth accelerated to seven percent in the second quarter from 6.8 percent in the first quarter amid strong boost from election related spending.

“Without it, we could have grown 12 percent in the second quarter of 2016. But because of the negative impact of external trade, exports and imports we were pulled down to only seven percent,” he said.

The BSP official also said improved economy in Europe would also benefit the deployment of more overseas Filipino workers.