By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has revised its 2020 inflation forecast to a flat two percent for 2020 after factoring in the extended lockdown period although some economists forecast higher.
BSP Governor Benjamin E. Diokno announced over the weekend that inflation will average at the low-end of the two-four percent target or at two percent from the previous forecast of 2.2 percent announced last March 19.
“(The) continued collapse of global crude prices, decline of non-oil prices and the impact of COVID- 19 on global and domestic growth prospects” were the given reasons for the 2020 forecast revision, according to Diokno.
As for 2021, the inflation forecast had a small adjustment from 2.4 percent to 2.45 percent. “The latest average inflation forecast of 2.45 percent for 2021 is slightly higher compared to the previ¬ous forecast due to the projected strong recovery in domestic activity and higher liquidity growth,” said Diokno.
Diokno reiterated that the Philippines will probably have a U-shaped economic recovery in 2021.
“The domestic economy could slow down in the first quarter 2020 and is projected to contract in second quarter and third quarter before gradually recovering in the fourth quarter 2020,” the BSP chief said.
“On an annual basis, GDP is expected to shrink by 0.2 percent in 2020 before it bounce back to about 7.7 percent as the impact of the government policy support measures gain traction.”
“The strong recovery is based on the assumption that the pandemic is contained in the second half of 2020,” said Diokno.
Meantime, economists and analysts expect a higher inflation number of 2.9 percent for 2020 and three percent for 2021 compared to the BSP’s own forecast of two percent and 2.45 percent, respectively.
“Analysts anticipate inflation to ease but remain within the target range, with risks to the inflation outlook tilted to the downside due mainly to subdued demand amid the COVID-19 pandemic,” the BSP said, citing results of the March 2020 Private Sector Economists’ Inflation Forecasts report.
The 2.9 percent inflation projection for 2020 was unchanged from its December 2019 survey. However the forecast for 2021 of three percent was lower than the previous 3.1 percent.
For 2022, the 24 economists surveyed said the forecast remains at three percent. The survey, done from March 10 to 31, was conducted while Metro Manila, the rest of Luzon and other areas were on COVID-19 lockdown.
Economists said the key downside risks to inflation include: declining global crude oil prices; strict implementation of non-monetary policy actions such as the rice tariffication law; and muted global and domestic economic activity. They also cited the appreciation of the peso against the US dollar as down-side risk.