Philippine’s GDP growth goes past forecast

The Philippines’ economy grew faster than the projection in the first quarter, raising speculation of interest rate hikes to combat growing inflation. It is a crucial concern that the country’s newly-elected President Ferdinand Marcos Jr is facing.

The Southeast Asian country’s gross domestic product (GDP) increased by 8.3% year-over-year in January-March, exceeding expectations and outpacing the previous quarter’s 7.7% growth.

The growth was indeed been the fastest since the second quarter of 2021 when it hit 12.1%.

The Bangko Sentral ng Pilipinas (BSP), the country’s central bank, will be meeting on May 19 amid increased anticipation of an interest rate hike to curb rising prices. It has recently been left unchecked, which in turn might endanger the economy.

Nicholas Mapa, senior executive for the Philippines at ING said that this strong recovery of the economy with the above-target inflation points to policy normalization from the Bangko Sentral ng Pilipinas.

He further said that the Philippines BSP Governor Diokno has been keeping the rates unchanged so as to help support the recovery of the economy. However, with the GDP now back to pre-COVID-19 levels, along with the inflation accelerating.

It is expected that BSP will hike policy rates during the May 19 meeting. It also expects the average for the full year to hit 4.3% but predicts that the inflation will ease to the given target in 2023.

Ferdinand Marcos Jr will be taking over the presidency in June after the end of the 6-year term of Rodrigo Duterte.

Source: Global Business Outlook

Inflation will be a concern for new president

Inflation management should be a top economic priority for the next president of the Philippines, as rising consumer prices may prompt the Bangko Sentral ng Pilipinas (BSP) to raise interest rates as early as next month, according to Moody’s Analytics.

Sonia Zhu, associate economist at Moody’s Analytics, said in a commentary that the incoming president would need to treat inflation as a top economic priority.

“Inflation management has become a key policy point. Since early 2022, household discretionary income has come under threat from higher prices for staples,” she said.

In a commentary titled “Inflation Will Be a Headache for the New Philippine President,” Zhu said Russia’s invasion of Ukraine and Chinese COVID lockdowns worsened supply-chain disruptions and brought inflation into the spotlight.

Latest data showed inflation quickened to 4.9 percent in April, the highest in more than three years from four percent in March. This exceeded the BSP’s two to four percent target range.

The research arm of the Moody’s Group said inflation also exceeded BSP’s two to four percent in the early years of Duterte’s presidency.

Inflation surged to 5.2 percent in 2018 due to climbing food and non-alcoholic beverage prices. The high food inflation dampened real gross domestic product (GDP) growth in 2018 as households cut spending after the BSP hiked rates aggressively by 175 basis points to 4.75 percent.

“Even so, inflation didn’t significantly cool until 2019,” Zhu said.

According to Zhu, the BSP has to do the heavy lifting anew to soothe inflation.

BSP Governor Benjamin Diokno earlier said the central bank is likely to keep interest at record lows on May 19 as it looks into the first quarter GDP outturn before making a move on June 23.

“The BSP governor said the central bank will monitor March-quarter GDP figures to get a better handle on the extent of the economic recovery. A first-quarter GDP growth reading above six percent year-on-year will increase the odds of a rate hike in June to 60 percent,” Zhu said.

Moody’s Analytics said polls show that presidential aspirant Ferdinand “Bongbong” Marcos Jr. is likely to become the new president of the Philippines as Vice President Leni Robredo trails far behind.

“Both Marcos and Robredo have floated fiscal support, with Marcos flagging the idea of a fuel subsidy and Robredo suggesting targeted social aid for the poor. The prolonged pandemic has widened income disparity in the Philippines and increased unemployment,” Zhu said.

According to Zhu, the jobless rate was sitting around five percent prior to the COVID pandemic, but climbed to around seven to eight percent.

Latest government statistics released in late 2021 showed around 26 million Filipinos of close to 24 percent of the population could not meet their basic food and nonfood needs.

“In an effort to address poverty, Robredo has also promoted a job scheme and housing program. Marcos has suggested the government step up investment in agriculture as a way to create jobs,” the economist said.

Moody’s Analytics said that the Philippines might not have the financial capacity to provide such fiscal cushioning as heavy borrowing to fund pandemic stimulus packages took the country’s debt-to-GDP ratio beyond 60 percent in 2021 from 54.6 percent in 2020.

“The limited fiscal room has the new administration’s hands tied when it comes to navigating price hikes,” Zhu said.

Source: Philstar

Inflation jumps to over 3-year high of 4.9% in April

The headline inflation in the Philippines increased further to 4.9 percent in April 2022, from 4.0 percent in March 2022. This is the highest recorded inflation since January 2019. Inflation in April 2021 was lower at 4.1 percent. The average inflation for the first four months of the the year stood at 3.7 percent.

The increase in the country’s inflation was mainly brought about by the higher annual increase in the index for food and non-alcoholic beverages at 3.8 percent; transport, 13.0 percent; and housing, water, electricity, gas, and other fuels, 6.9 percent. Also contributing to the uptrend in the overall inflation during the period were the higher annual increments in the indices of the following commodity groups as compared with their previous month’s inflation rates:

a. Alcoholic beverages and tobacco, 5.9 percent; b. Clothing and footwear, 2.0 percent; c. Recreation, sport and culture, 1.6 percent; and d. Personal care, and miscellaneous goods and services, 2.3 percent.

Meanwhile, annual upticks slowed down in the indices of health at 2.4 percent; and restaurants and accommodation services at 2.8 percent.

The rest of the commodity groups either retained their previous month’s inflation rates or had zero percent annual growths.

For food index, it increased further by 4.0 percent in April 2022, from 2.8 percent in the previous month. In April 2021, food index was higher by 4.1 percent.

The annual growth rate of the vegetables, tubers, plantains, cooking bananas and pulses index went up to 9.2 percent during the month, from -0.1 percent in the previous month. In addition, double-digit growth rate was observed in oils and fats index at 11.7 percent.

The following food groups exhibited higher annual increments during the month:

a. Flour, bread and bakery, pasta products, and cereals, 4.1 percent; b. Meat and other parts of slaughtered land animals, 4.2 percent; c. Fish and other seafood, 5.0 percent; d. Milk, other dairy products, and eggs, 1.1 percent; e. Sugar, confectionery and desserts, 7.3 percent; and f Ready-made food and other food products n.e.c., 2.9 percent.

On the other hand, the corn index had a lower annual uptick at 27.1 percent. The rice index remained at 1.6 percent inflation, while the fruits and nuts index still registered an annual decline at -4.6 percent respectively.

Source: PSA