In the first quarter (Q1) of 2018, the Philippine economy grew by 6.8% mainly due to strong government and household consumption which is good since this is the 10th consecutive quarter that the economy grew by 6.5% or better. The Socioeconomic Planning Secretary Ernesto Pernia said that the GDP would have been within the government’s target were it not for the high inflation. It was also due to higher fuel prices and the implementation of the first package of our tax reform program.
In relation to this, not only did the country experience a high inflation rate, there was also a slow agricultural output and a wider trade deficit. The expected GDP target for this year is 7% to 8%. Obviously, this quarter’s result did not meet the government’s target band. However, this is still seen as positive news since the rate settled at the low-end target for 2018.
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As for the major sectors which accounted for the GDP growth, the industry sector recorded the fastest growth at 7.9% followed by services at 7%. With regards to the slow paced sectors, agriculture expanded at sluggish rate of 1.5%. Exports also worsened in first period this year. However, Pernia pointed out that there we’re still one of the fastest growing economies in the region next only to Vietnam and China.
As mentioned above, the higher than expected inflation rate prejudiced the performance of our economy. This means that the authorities are now focused on curbing the high inflation rate. The monetary authority, more particularly Central Bank – which is the Bangko Sentral ng Pilipinas (BSP) – is now pressured to increase the interest rates.
Analysts have pegged the Philippines to be behind the curve in raising interest rates as pressures and speculation to raise rates were mounting since last year. All of this would mean an end to an era of record-low interest rates. Since growth is stable and inflation was mainly driven by government spending, authorities must now resort to a different measure which is to increase its policy rates. By doing this, this will lessen the outflow of money and control the current money supply. Last May 10, the Monetary Board held a meeting to finally increase the BSP’s overnight reverse repurchase (RRP) facility by 25 basis points. So from a record low of 3% in more than three years, it now stands at 3.25%.
While the main concern is to further boost our solid economic growth, we must take into consideration the other indicators which are well beyond its accepted rate. Growth must not be sacrificed for the prices of services and commodities. The key here is to strike the perfect balance between achieving the two. Since the administration will push through with its budgeted US$ 180 billion infrastructure spending, the authorities must work on other aspects that will provide a balance between growth and stable prices in goods and services. The BSP projects the inflation rate to hit at 3.9% for 2018. The Monetary Board is positive that the increase in its policy rate will be the best move to counter possible second round effects.
Today’s movement gave the PSEi its first glimmer of hope of escaping the downtrend. From April 15 to where we are now the market formed a buying range and 7,500 suddenly became the base where bulls started to surface. Today’s movement does not yet warrant a reversal but it shows us that the market as of this point in time has already stopped from falling.
The next resistance is pegged at 7,900 – 8,000.