• BSP upholds economic targets on strong growth factors

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    IMPROVED productivity, economic efficiency, favorable labor market dynamics and demographic factors will push the Philippine economy to the high end of its growth potential this year, the Bangko Sentral ng Pilipinas (BSP) deputy governor said.

    The BSP’s Diwa Guinigundo said he now sees more diversified sources of growth in the country. These include increased investment and public spending that support private consumption, manufacturing, construction and agriculture, complementary to services and contributing to the growth process.

    “What drove these growth-positive factors have been the 20 years of steady policy and structural reforms. These are clearly a demonstration that the Philippine government has attained a good sense of governance,” Guinigundo was quoted in the blog entry of personal finance coach Randell Tiongson.

    “It should not, therefore, be surprising if I will uphold the government target of 7-8 percent economic growth in 2015 and 2016,” he said.

    “That growth range has been achieved at some point in the past, I don’t see any reason why that should be elusive in the future,” he added.

    However, the BSP official noted that what is needed in the country at present is more infrastructure.

    With the Philippines’ investment grade continuing to go up, both domestic and foreign investment should remain bullish about the country but infrastructure including power should remain the focus of these investments, he said.

    Within target inflation, BOP recovery
    In terms of consumer prices, Gunigundo pointed out that with good supply prospects and pro-active monetary policy, helped by the decline in oil and other commodity prices, inflation should be averaging at a rate comfortably within the lower target range of 2 percent to 4 percent for both 2015 and 2016.

    Inflation last year averaged to 4.1 percent, within the BSP target range of 3 percent to 4 percent.

    “The BSP and the national government have good monetary and fiscal space, respectively, to continue promoting price stability and good public finance,” he said.

    On the external front, he stressed that the central bank’s initial forecast of sustained external payments surplus continuing to be broadly appropriate.

    The Bangko Sentral official said the balance of payments (BOP) should be able to bounce back strongly from a shortfall in 2014 to a surplus in both 2015 and 2016, with the current account expected to show increasing positive position of at least $6.0 billion.

    The country incurred a $2.88 billion BOP deficit in 2014.

    Divergent policies
    “These are premised on one, recovery in the global economy but at an uneven pace. This dimension is important because unevenness should lead to divergent monetary policies,” he said.

    The BSP official expects the US to start preparing the stage for some tightening which could result in some capital outflows in the Philippines.

    However, he said Europe and Japan remain soft so monetary policy is needed to be accommodative which could drive some capital to flow to emerging markets including the Philippines.

    Furthermore, China and India are the other difficult challenges with structural issues threatening to pull them down so a generalized easing among many central banks can also be seen.

    “All told, the asynchronous policies could pull each other apart and generate some volatilities in the global and regional financial markets. The Philippines should be very vigilant in monitoring these developments and should be prepared to act decisively as necessary,” he said.

    Stable banking system
    Guinigundo also expects strong and stable banking system continuing to provide additional resiliency to the economy.

    Financial intermediation is expected to remain supportive of economic growth.

    With key reforms in place and expected to be pursued, market confidence should remain strong and this is something that does not come by easily, he said.

    “There would always be some risks even at the tail end. This is the reason why the BSP is always doing stress tests and scenario building exercises to ensure we are not surprised by external shocks. This is the reason why we have a stable of early warning systems on the key sectors of the economy including the business cycle,” he concluded.

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