Government keeping growth goals despite risks

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HIGHER-FOR-LONGER interest rates and current geopolitical risks that threaten to cause a spike in oil and food prices are not enough reasons for the national government to give up on its growth targets this year, according to the country’s chief economist.

Socioeconomic Planning Secretary Arsenio M. Balisacan noted the optimism of international observers who still believe the Philippine economy will grow around 6 percent or better and be among the fastest-growing economies in Asia this year.

The Asian Development Bank (ADB) and the International Monetary Fund (IMF) forecast that the country’s GDP will breach 6 percent this year and next year. The World Bank, meanwhile, expects Philippine GDP to grow 5.9 percent annually between 2024 and 2026.

“All of the major development observers are seeing a six percent at least for the Philippines this year. The IMF, the ADB, the World Bank are all seeing a quite good number. In fact, in the latest ADB report they put us as the highest performer for 2024 [in Southeast Asia],” Balisacan recently told reporters in an interview.

“So even though [the growth is] not as high as we targeted in the beginning of this administration, the fact that while everybody was downgraded or while we were downgraded in terms of the absolute level of growth, [we were still] among the best [and] are expected to perform among the best in Asia,” he added.

Earlier, the Bangko Sentral ng Pilipinas [BSP] said it could delay any rate cuts to the first quarter of 2025, pending improvements in the country’s economic performance, including cooler inflation. (See: https://businessmirror.com.ph/2024/04/09/inflation-may-prompt-rate-cuts-delay-to-2025/)

However, Balisacan said the hawkish stance of the Monetary Board is a given and has already been considered in the government’s growth assumptions.

The National Economic and Development Authority (Neda) Secretary also said rate cuts are also not expected anytime soon as inflation remained high.

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“That’s [high interest rates] already given. I mean, when we look at the six to seven percent [growth target] that’s more or less already given because we know that the interest rates have [at] most five quarters of impact down the road,” Balisacan said.

“As inflation has come down from their highs, it’s high [point] early last year. So, the public would be expecting a lower interest rate down the road. Not too soon because of the volatility of the external environment, I believe,” he added.

‘Very drastic’ event

Nonetheless, Balisacan said only a “very drastic” event that could harm the global economy and cause inflation to breach the 4-percent target, could derail the government’s positive outlook on the economy.

A very drastic event could be the spread of the conflict in the Middle East. Many of the world’s oil producers are in this region of the world and, as such, have the potential to jack up oil prices.

Balisacan explained that high oil prices are a major threat as this will affect logistics and distribution that are crucial in efficient supply chains. If these are affected, food prices could again see an increase.

“I think that going back to the times when inflation hit 8 percent would not be [possible] unless something very drastic happens in the global economy. [We’re] just crossing our fingers that the conflict there in the Middle East will not spread far and wide. That could affect global supply chains. Then, no one will be spared from that,” Balisacan said.

The Neda chief said the government is closely monitoring developments in the Middle East as this could influence oil prices. Should global oil prices rise, Balisacan said this would also translate to faster domestic inflation.

Rice prices

Nonetheless, Balisacan said rice prices are expected to peak by June and start falling in July as the El Niño phenomenon wanes. This will improve the country’s chances of seeing food prices decline.

Based on the Consumer Price Index (CPI) for All Income Households, rice has a weight of 8.87 percent while for the Bottom 30 percent of households, it has a weight of 17.87 percent.

The CPI also showed that food—in general—has a weight of 34.78 percent for all income households while for the Bottom 30 percent of households, the CPI for food is higher at 51.38 percent.

“[By the] second half of this year, we expect the pressure from food prices to diminish. Because, you know, a big part of that food inflation was imported in the sense that food prices, particularly for staple, have been rising in the world market. But for rice, that is expected to reach its peak and start falling after June as the El Niño phenomenon is waning. So hopefully that will [be] a plus factor for us,” Balisacan said.

Based on the recent estimates, ADB expects the country’s GDP growth to average 6 percent this year and 6.2 percent next year. (See: https://businessmirror.com.ph/2024/04/12/high-inflation-spurs-adb-to-cut-phl-growth-outlook/)

The IMF, meanwhile, estimated that the country’s GDP is expected to post a growth of 6.2 percent this year and next year (See: https://businessmirror.com.ph/2024/04/17/imf-phl-growth-faster-but-jobless-rate-to-rise/).

The World Bank said the country’s economic growth will perform below potential at 5.8 percent in 2024 and 5.9 percent in 2025. (See: https://businessmirror.com.ph/2024/04/02/persisting-higher-us-rates-to-hurt-region-twice-wb/)

Earlier, local economists told BusinessMirror that geopolitical risks would make it more difficult for imported oil-dependent countries like the Philippines to tame inflation, which could accelerate to double digits if oil prices jump to unprecedented levels.

Bloomberg reported that oil traders piled into more than 3 million barrels worth of options contracts in a bet that prices would spike to $250 a barrel by June as geopolitical risks remain elevated. (See: https://businessmirror.com.ph/2024/04/19/geopolitics-may-hurt-bid-to-tame-inflation/)

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