Q2 growth showed PH economy far from overheating–BSP

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THE Bangko Sentral ng Pilipinas (BSP) said the 6.5 percent Philippine gross domestic product (GDP) growth in the second quarter of the year was proof that the economy was far from overheating.

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Last week, the government reported that Philippine economy grew 6.5 percent in the second quarter of 2017, accelerating from 6.4 percent in the first quarter due largely to bigger government spending amid a slack in private investment. However, it was slower than the 7.1 percent growth registered in 2016.

The second-quarter pace brought the first-half rate of growth to 6.4 percent, losing steam from 7 percent in the first half of 2016, and falling short of the full-year target set by the government between 6.5 percent and 7.5 percent.

“Such growth of 6.5 percent in the context of price stability is very much consistent with our potential output and that should convince us that overheating is quite distant at this point,” Bangko Sentral Deputy Governor Diwa Guinigundo said.

As an assurance, Gunigundo said the central bank’s “ears remained firmly on the ground so we could act preemptively.”

In June, Singapore-based DBS Bank said it was seeing early signs of an overheating Philippine economy – making a case for a monetary policy tightening in the coming months.

“The Philippine economy is displaying early signs of overheating,” DBS had said in a report, citing the factors that prompted its assessment: nearly 7 percent growth in gross domestic product (GDP) in 2016; above 3 percent headline inflation rate since February 2017; very strong investment growth; more than 20 percent expansion in gross fixed capital formation in 2016.

An economy starts to overheat when a prolonged period of growth has spurred faster inflation from increased consumer spending and supply allocations have become inefficient as manufacturers overproduced, creating excess production capacities in an attempt to capitalize on high levels of wealth, as described by Investopedia. MAYVELIN U. CARABALLO

 

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