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DOF: Lower inflation unlikely to affect PH growth

Posted at 08/20/2014 3:49 PM

MANILA, Philippines – The expected slower consumer price increases in 2015 will unlikely dampen the country's economic growth, Finance Undersecretary and chief economist Gil Beltran said.

Beltran said lower inflation will not have a negative effect on growth, contradicting a report by Standard Chartered saying the central bank’s action of lowering inflation is a constraint on the economy.

“In 2012 and 2013 when GDP growth reached 6.8 percent and 7.2 percent, respectively, inflation dropped to 1.9 percent. In theory, when growth rises, the supply of goods available in the market also rises. This dampens price levels and in turn, reduces interest rates,” Beltran said.

“The BSP's moving from a regime of negative real interest rates to positive real interest rates is more sustainable in the long run; it avoids bubbles and maintains the growth of savings,” he added.

The finance official also expressed confidence that the slow pace of growth in the first quarter of the year is just “a short-term phenomenon and should not be seen as a trend,” citing the growing manufacturing sector and sustained investment growth.

"In economic zones, [Philippines] investment is 27 percent up in the first half of 2014 and foreign direct investments net flows is up 34.5 percent growth from January to May 2014,” he said.

Beltran added that a turnaround in the slow government expenditures in the first quarter will likely occur in the next few months as the disbursement rate is one of the eligibility requirements of the performance-based bonus (PBB).

“When government departments were reminded that disbursement rates below 90 percent will automatically disqualify them from PBB, government expenditures quickly rebounded by a hefty 44 percent in June 2014,” Beltran said.

“The medium-term growth prospects of the economy are sound. The Philippine economy has the capacity to grow faster than the 7.2 percent attained last year with or without the boost from election spending,” he added.