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High inflation drags down Q3 economic growth

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By Chino Leyco and Reuters

Philippine economic growth slightly weakened in the third-quarter of the year amid skyrocketing commodity prices that were partially fuelled by the contraction of the agriculture sector during the three-month period.

The Philippine Statistic Authority (PSA) reported on Thursday that the country’s economy, as measured by its gross domestic product (GDP), expanded by 6.1 percent in July to September, marginally slower than the 6.2 percent in the second-quarter.

The latest economic growth figure was also down from 7.2 percent during the same period last year.

But despite the slower economic expansion, Socioeconomic Secretary Ernesto M. Pernia believes the third-quarter GDP is a “respectable” performance, citing it is the 14th consecutive quarter where the country grew above 6.0 percent.

The second-quarter growth brought the country’s nine-month GDP average at 6.3 percent, down from 6.8 percent during the same period last year and below the government’s full-year outlook of 6.5 percent to 6.9 percent.

“We are now on a higher growth trajectory, as we in NEDA [National Economic and Development Authority] have been saying. That is why we need to focus on building capacity in physical infrastructure, human capital, and financial capital,” Pernia said.

Pernia also said they need to encourage the private sector to partner with government to expand production capacity and invest in innovation.

“We are not exactly exuberant about the 6.1 percent growth rate, but still comforted that we remain one of the fastest-growing economies in Asia, next to Vietnam at 7.0 percent, China at 6.5 percent, and way ahead of Indonesia at 5.2 percent,” Pernia said.

Meanwhile, the NEDA chief said that the GDP growth would have been between 6.5 percent and 7.0 percent during the quarter if not for high inflation, which clocked in at nearly a decade high of 6.7 percent in October.

Higher inflation weakened household spending growth of 5.2 percent during the July to September period, the slowest since the 5.0 percent in the third-quarter of 2014.

Food purchases grew by only 2.6 percent in the quarter ending September amid high consumer prices.

For this reason, he admitted that the new 6.5 percent to 6.9 percent GDP goal this year is “much more challenging” to meet as the country requires to expand 7.0 percent in October to December to meet the lower end of target.

“We are concerned, because the reason for the slowdown, among others, is the slowdown in household consumption, particularly the marked slowdown in the household spending on food and other basic products,” Pernia said.

Among the major economic sectors, services recorded the fastest growth at 6.9 percent, followed by industry’s 6.2 percent. On the other hand, agriculture declined by 0.4 percent, the first contraction since the fourth quarter of 2016.

Pernia blamed the contraction in agriculture in part to recent storms and late planting of crops.

Finance Secretary Carlos G. Dominguez III, meanwhile, expressed optimism that the economy would regain its stride in the coming quarters as the government rolls out more big-ticket infrastructure projects.

Dominguez also said that the Duterte administration continues to implement measures to further ease price pressures and pursues additional policy reforms to make the domestic economy more conducive to investments and jobs.

“There is no room for complacency and the Duterte administration would remain focused on boosting medium-term growth by keeping tabs on the supply and prices of critical food items and continue building up the productive capacity of the economy while maintaining fiscal stability,” he said.

For inflation, Dominguez admitted that it has impacted growth, but the latest data indicated that price pressures have started to ease as a result of monetary and non-monetary measures that the government has put in place to augment the supply of crucial food items.

Slowest pace

The Philippine economy grew at its slowest pace in three years in the third quarter on the back of soft household spending and weak export and farm sectors, making it less likely the central bank will immediately tighten policy to tame inflation.
“The slowdown in household spending is deemed to be abatable and temporary, but we can only do so much,” Pernia said in a briefing following the data.

“With this, the Philippines needs to expand by at least 7 percent in the fourth quarter to attain the low end of the government’s target of 6.5-6.9 pct growth rate for the whole of 2018,” Pernia said.

The economic slowdown in the September quarter suggests the central bank may refrain from an immediate tightening of monetary policy, or at least take less aggressive policy action to tame inflation.

The Bangko Sentral ng Pilipinas holds its next policy meeting on Nov. 15.

Soaring consumer prices have prompted the Philippines to shave its GDP growth target for this year to 6.5-6.9 percent from 7-8 percent previously and raise its inflation forecasts for this year and next.

Data released on Tuesday showed annual inflation at 6.7 percent in October, unchanged from the previous month and the first time the rate has steadied this year.

To slow inflation to within its 2-4 percent target band next year, the BSP has raised interest rates at its last four meetings by a total of 150 basis points, bringing its benchmark rate to 4.5 percent.

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