BSP expects 5.8-6% Q3 GDP; stronger Q4 growth

Published October 25, 2019, 12:00 AM

by manilabulletin_admin

By Lee Chipongian

The Bangko Sentral ng Pilipinas (BSP) expects the third quarter Gross Domestic Product (GDP) to grow by 5.8 percent to six percent, and the last quarter to report a much higher number because of the government’s ramped up spending in the last half of 2019 after budget constraints in the first six months.

A logo of the Bangko Sentral ng Pilipinas is seen at their headquarters in Manila, (REUTERS/Romeo Ranoco / MANILA BULLETIN)
A logo of the Bangko Sentral ng Pilipinas is seen at their headquarters in Manila, (REUTERS/Romeo Ranoco / MANILA BULLETIN)

BSP Deputy Governor Francisco G. Dakila Jr. said that based on their multiple forecasting methods, composite reading index and other models, they forecast a recovery in the GDP turnout in the third quarter from the second quarter’s 5.5 percent, and by the fourth quarter, he said growth “will be stronger” due to higher budget releases and the Christmas season spending.

“We see the fourth quarter GDP closer to the midpoint of the 6-7 percent (government) target,” Dakila said during the BSP’s quarterly inflation report presentation Friday.

In his opening statement before the inflation briefing, BSP Governor Benjamin E. Diokno said growth will “remain robust” based on the “higher-frequency demand indicators (that) point to an overall positive outlook for the domestic economy” such as the composite Purchasing Managers’ Index and BSP’s own surveys.

Dakila echoed what Diokno said earlier that the impact of the water reduction or interruptions to inflation are yet undetermined but initially it shows manageable effect.

Dakila said they have not yet included the water problem in the baseline forecast risk factors for inflation. “We will be updating inflation forecasts as the numbers come in,” he added.

Meantime, Department of Economic Research Director Dennis D. Lapid said that in terms of forecasting, they have factored in the weather conditions at the start of 2019 because of the dry season El Nino. The inflation outlook has considered the impact of the weather information. “We’re expecting normal or near normal rainfall in the fourth quarter until the first quarter 2020 and the El Nino has officially ended last August-September,” said Lapid.

Diokno and the BSP officials reiterated that over the near term, the inflation upside risks continue to come from uncertainties arising from global oil price volatility and the potential impact of the African Swine Fever outbreak on local prices.

To provide stimulus and offset these upside risks, the BSP cut interest rates by 75 basis points (bps) this year and reduced the reserve requirement ratio (RRR) by a total 400 bps by the first week of December.

The first 200 bps RRR cut was implemented as of end-July, while the next two 100 bps which will reduce the rate to 14 percent, will be applied in November and December. Diokno said the reduced RRR will spur credit growth and support economic activities.

Benign inflation outlook continued in the third quarter with inflation decelerating to 1.7 percent compared to three percent in the previous quarter and 6.2 percent during the same period in 2018.

For the first nine months, inflation averaged 2.8 percent. For the full year, the BSP forecasts 2.5 percent.