Slower inflation, election spending seen as key to growth this year

Philippine economic output may grow by 7.1 percent in the second quarter driven by easing inflation and election spending for the mid-term, according to the lead economist at Bank of the Philippine Islands (BPI).

This is higher compared to the government’s growth target for the year, which is 6 percent to 7 percent.

“Slower inflation should improve consumer confidence, household spending, and together with election spending, it’s good for growth this year and next year,” Emilio Neri Jr., said during the annual meeting of the Chamber of Thrift Banks held last Friday.

Household spending, which accounts for more than 70 percent of the Philippine economic output, slowed down by 4.6 percent in the first quarter this year from 5.3-percent growth in the preceding quarter.

Neri attributed the slower growth in private consumption to rising prices of rice, a staple food in the region.

He said, however, that this would go lower following the government’s move in reducing the tariff on rice imports as well as the end of the El Niño climate phenomenon which took a toll on the agriculture sector.

“If rice did not move at all from its price last year because its contribution [of 2 percent] out of the 3.7-percent inflation would have only been 1.7 percent,” the economist said.

“That’s how big an impact it has had, especially to the ordinary Filipino. So, if that starts to disappear as we move along the rest of the year and early part of next year, we should see inflation really go down significantly,” he added.

Neri expects inflation year-on-year in September to “hit 3 percent or even lower,” pulled down by high base effects from last year.

He said election-related spending may boost the country’s growth until April next year.

“Election spending is already starting. You can see it. For those of you who traveled from faraway places, you know the campaign material is already up. The roads are being destroyed so that they can be rebuilt,” Neri added.

He also noted the growth in the Filipinos’ consumer confidence, a positive indicator for economic expansion.INQ