Pernia: Philippines economy far from overheating

CEBU, Philippines — The Philippine economy is not in danger of "overheating" despite the rising inflation and continued weakening of the peso, the country’s chief economist said.

Economic planning chief Ernesto Pernia shrugged off fears of the economy overheating.

He pointed out the country remains to be among the fastest growing in Asia, despite facing issues such as rising prices, fall of the peso and widening trade deficit.

The economy is also facing external headwinds such as the high global crude prices, trade war between the US and China, and rising Fed rates, among others.

Pernia said the government expects inflation to taper off by the end of the year.

Inflation last month rose 5.2 percent, seeing its highest level in about five years.

Earlier, Mandaue Chamber of Commerce and Industry vice president Steven Yu said: "Even with high inflation of 4 percent-5 percent and a weaker peso, our economy can easily weather and rise above these developments relatively unscathed. Unless a major, major external shock comes around, there is nothing to worry about. Our real GDP (gross domestic product) growth will continue to increase. Endo will have its effects but will eventually be absorbed by the system, and will not affect the economy in general."

As far as the GDP, which measures the country's economic health, is concerned, the Philippines is doing quite well.

In the first quarter of 2018 the economy grew 6.8 percent, among Asia's fastest growing.

Many have complained of the rising prices of fuel and basic commodities, blamed on the Tax Reform for Acceleration and Inclusion (TRAIN) which took effect starting this year.

The first package of the TRAIN cuts personal income taxes but imposes higher taxes on commodities such as oil and sugar-sweetened beverages.

The Philippine headline inflation is now at a five-year high mainly driven by the new tax law and rising global oil prices.

The rising inflation, which is hurting low-income consumers, pushed monetary authorities to raise borrowing costs for the first time in 2 years.

The Philippine peso also continues to weaken, hovering the P53-level, its weakest in 12 years.

Weighing on the falling peso is fund shifting of foreign investors to the US market which drove the increased demand for dollars and the fast growing imports due to the government's P8-trillion infrastructure program in the next four years.

It was also a good relief to the business community when Duterte recently signed the Ease of Doing Business Act, which requires government agencies to act on applications within 3 days for simple transactions, 7 days for complex ones and 20 days for the highly technical.

Despite the short-term volatility in the financial markets, the country's growth momentum looks intact as fundamentals remains robust and that long-term prospects for the economy seem to be positive.