MANILA, Philippines – Growth targets will be retained while inflation forecasts will be revisited, officials said, after the first-quarter economic expansion both surprising policymakers and becoming the fastest in Asia for the period.
Socioeconomic Planning Secretary Arsenio Balisacan said the Aquino administration is “sticking” to its six- to seven-percent growth target for the year “at the moment,” even after the uptick for the first three months registered way beyond at 7.8 percent.
“We periodically review assumptions. We will consider first quarter performance when we meet,” Balisacan told reporters on Thursday after the data’s announcement.
The Development Budget Coordinating Committee (DBCC), the body setting macro-economic targets, has yet to set a meeting to review its assumptions, but Budget Secretary Florencio Abad acknowledged growth would be sustained in the coming months.
“We intend to sustain or surpass the very standards we set over the succeeding quarters,” said Abad, who is also DBCC chairman, in a statement. He did not elaborate.
The 7.8-percent growth last quarter surpassed all growth rates in Asia, notably in China (7.7 percent), Indonesia (six percent), Thailand (5.3 percent), Vietnam (4.9 percent), Malaysia (4.1 percent), Japan (3.5 percent), South Korea (1.5 percent).
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Strong consumption driven by election-spending, investments and government spending were tagged as the drivers for the growth, which was the fastest in three years. A stable inflation, averaging three percent as of March, was also noted.
However, the Bangko Sentral ng Pilipinas (BSP) said there is need to “update” its inflation forecasts considering the new growth data. Currently, the central bank sees consumer prices to rise 3.2 percent and 3.4 percent for this year and the next.
The outlooks fall within the BSP’s three- to five-percent target range. As of the first quarter, inflation settled at the low-end of the goal.
“We do not foresee a breach of the inflation target over the policy horizon” of 12 to 18 months, BSP Governor Amando Tetangco Jr. said in a text message to reporters.
“The BSP remains watchful of price developments. We have ample policy space to address any immediate price pressures that may arise,” he added.
He explained that since growth mainly came from high capital formation and spending, the economy’s absorptive capacity may expand and thus, avoid a rise in inflation as a result of high liquidity.
Demand pressures are also unlikely, Tetangco said, as investments are expected to boost supply of basic goods and services.
“There is still considerable slack in the economy. We don’t expect inflation to pick up soon. If at all, pressure will come from peso depreciation,” he said.
Slow inflation in past months has allowed the BSP to keep policy rates loose to encourage more bank lending and boost economic activity. Rates currently stand at record-lows of 3.5 percent and 5.5 percent.