Philippines Central Bank Statement

Author: | Published: 5 Sep 2017
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Philippine economic growth continued to gain traction, recording a 6.4% output in expansion in Q1 2017. At this rate, it has maintained the growth momentum above the 10-year average of 5.6% amidst the protracted uncertainty and volatility in the global economic landscape. The growth performance of the Philippines has been secured by firm domestic demand dynamics, with consumption, government spending and investments remaining robust. Business confidence remained highly positive while consumer optimism reached an all-time high in Q2 2017.

Sound macroeconomic policies have anchored the stability and growth prospects of the economy. Monetary policy settings have been attuned to domestic developments and focused on keeping inflation within the target of 2% – 4% for 2017-18. The banking system is also efficient and stable, supported by sound supervisory and risk-based regulations. Liquidity and credit continue to grow at a reasonable pace. Meanwhile, the national government has committed to restructure the tax system and ramp up investments in physical and human capital to propel growth. These fundamentals are expected to further buoy momentum and sustain the country's economic track record.

We are cognizant however of the risks in the horizon, which could derail our objective to attain sustainable and inclusive growth. While latest indicators show that global economic activity is firming up, policy uncertainty in some advanced economies such as the United States poses challenges to the sustainability of this recovery. Moreover, amidst the improvement in global demand, the subdued global inflation environment creates pressures for the trajectory of monetary policies of major central banks. Emerging economies including the Philippines remain vigilant on how global developments will alter the normalisation path of the US Federal Reserve, the European Central Bank and the Bank of Japan.

Against this backdrop, capital flows and overall risk sentiment may be affected by the twists and turns of the global economy. This implies that authorities, including the Bangko Sentral ng Pilipinas (BSP), need to remain attentive to and contend with volatility. In 2016, we also learned that everyone is susceptible to black swan events and negative surprises. Hence, it remains imperative to keep our house in order, maintain policy flexibility, and build substantial buffers to dampen the impact of headwinds to domestic growth.

In the domestic sphere, inflation remains benign although the balance of risks to the inflation outlook remains tilted towards the upside. While there may be potential transitory impact of the proposed tax reform program, social safety nets are expected to mitigate the resulting inflationary pressures. The long-run effects on productivity will improve overall supply and further dampen inflation. Nevertheless, inflation expectations remain anchored in the official target. Meanwhile, prospects for the global economy have improved, but risks to external demand remain tilted to the downside. The BSP is committed to stay the course with sound monetary and financial policies, in order to bring about price and financial stability and increase the resilience of the Philippine economy.




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