Subpar local output growth numbers on Thursday strengthened the likelihood for the monetary authorities to keep the rate at which they borrow from or lend to banks steady when they next meet on June 22.
This became more certain as local output measured as the GDP slowed to only 6.4 percent in the first three months from 6.9 percent, disappointing economists, analysts and observers.
But even then, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said that despite the slowdown to 6.4 percent, the monetary authorities continue to be optimistic of growth prospects the rest of the year.
“The outlook for growth remains strong, even as the first-quarter outturn is slower than market anticipated. BSP will continue to provide an operating environment that would support noninflationary domestic demand,” Tetangco said in a text message to reporters.
In all likelihood, this means the BSP will continue to borrow at 3 percent from banks and financial institutions and lend to them at 3.5 percent when the rate-setting meeting of the Monetary Board convenes for the fourth time on June 22.
Economists reacting to the GDP announcement said they remain bullish on the country’s ability to post stronger growth numbers in the second half despite falling short of market expectations early on in the year.
“A somewhat disappointing number out of the [first quarter numbers], especially on the consumption end, with private consumption growth below 6 percent and the mere 0.2 percent print in government consumption. We have expected contribution from fiscal consumption to have slipped in Q1, given that government spending was, indeed, slower in the period, partly distorted by the high base effects,” Singapore-based DBS Bank economist Gundy Cahaydi said.
ING Bank economist Joey Cuyegkeng in Manila similarly cited weak government spending as one of the key moderating factors in the first-quarter slowdown. But even then, the potential for greater output acceleration down the line remains, he quickly added.
“Government spending and infrastructure activity was very slow, a disappointment after all the hype. High base effects and likely some difficulty to get things moving accounted for the slowdown,” Cuyegkeng said.
“Monthly data of government budget spending were already showing the marked slowdown in January and carried over in Q1 2017. We anticipate that government spending would recover especially in the second half as infrastructure spending is ramped up,” the economist said.
Cuyegkeng forecasts GDP to hit 6.3 percent, with room for possible upward revision. Cahaydi, meanwhile, projects GDP hitting 6.4 percent for the full year, with risks to the forecasts now neutral after earlier tilting to the upside. The revision in risks came because of lower than expected growth numbers in the first quarter.
Both forecasts are below the official 6.5-percent to 7.5-percent target growth for 2017.
“Strong export growth is likely to maintain support for the economy. But more important, we still regard current domestic momentum as being strong despite the moderation in Q1,” Cahyadi said.
BSP chief Tetangco vowed to continue monitoring the country’s growth dynamics and their impact on monetary policy, saying: “As in the past, we will continue to calibrate our policy levers so these provide the appropriate incentive structure for businesses to plan with risk-adjusted returns in mind.” Cuyegkeng anticipates a steady BSP hand on monetary policy given liquidity and interest rate levels considered supportive of continued growth.
“Monetary policy is likely to remain steady in the near term as private-sector growth remains strong despite the high base effects. Monetary indicators of M3 and loan growth are still supportive of growth. We continue to review our base case of two rate hikes of 25 basis points each for this year,” Cuyegkeng said.
Image credits: Nonie Reyes