High inflation jeopardizes GDP target

Motorists refuel at a gas station in Novaliches, Quezon City, on March 12. Fuel retailers are expected to implement another significant pump price hike on Tuesday. — PHILIPPINE STAR/ MICHAEL VARCAS

By Luz Wendy T. Noble, Journalist

THE PHILIPPINES can find more difficult to meet the government’s economic growth target of 7-9% this year, as household consumption is likely to be hit by the riseflation caused by a protracted war between Russia and Ukraine, an analyst said.

The Philippine economy will likely only grow in the 5% range due to geopolitical developments that have shaken recovery prospects, said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila.

“Although we didn’t expect growth to slow to a pace closer to deerflation, we know that the aspiration for 7-9% growth will be a daunting challenge,” Mapa said in an email.

Financial Secretary Carlos G. Dominguez Last week, III said he did not expect the Russian-Ukrainian crisis “to last very long”, adding that the Philippine economy would only be affbecause oil and food prices will continue to rise.

Prior to Russia’s invasion of Ukraine, the International Monetary Fund, World Bank and Asian Development Bank estimated that the Philippines’ gross domestic product (GDP) would grow by 6.3%, 5.3% and 6% this year.

Credit assessors Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings forecast Philippine GDP growth of 6.9%, 7%, and 7.4%, respectively, which is near or at the lower end of the government goal.

Mr. Mapa said earlier inflation is “anything but a datum that will cap consumption even during an election year.”

Household spending, which accounts for about 70% of the economy, is typically boosted during an election year. It increased by 4.2% in 2021 after a drop of 7.9% in 2020.

Crude oil prices have skyrocketed since Russia invaded Ukraine.

Latest data from the Department of Energy showed that prices of petrol, diesel and kerosene have risen by P13.25, P17.50 and P11.40 per liter since the start of the year . This week, gasoline prices are expected to rise from 11.80 to 12 pesos per liter, diesel from 6.90 to 7.20 pesos per liter and kerosene from 9.70 to 9.80 pesos per liter.

Meanwhile, the gradual easing of pandemic restrictions could help boost growth but could also lead to faster price increases, Asian Institute of Management economist John Paolo R. Rivera said in a Viber message. .

“Our inflation figures are not yetflecting the oil price spike, but may manifest shortly when other industries and sectors feel the price change and when the wage spiral kicks in,” Mr. Rivera said.

Metro Manila and most parts of the country are under the most relaxed Alert Level 1. As the number of coronavirus disease 2019 (COVID-19) cases declines, there are calls to downgrade it to Alert Level 0.

Inflation stood at 3% for the second consecutive month in February, which is within the Bangko Sentral ng Pilipinas (BSP) target of 2-4%. However, the central bank warned that inflation could exceed the target in the second quarter due to higher oil prices, before slowing in the second half.

“The worst-case inflation scenario will not be limited to oil prices. us earlier [warned] on other transmission channels, including food and feed, other fuel inputs for electricity, a weaker currency and other second-round impacts,” the analyst said. GlobalSource Romeo L. Bernardo in a note sent to Business world.

“Price pressures will likely force BSP to raise rates sooner than expected, and perhaps even more aggressively if they delay the reversal any longer,” Mapa said.

Last week, the BSP said it would continue to prioritize supporting economic growth, but promised it would be ready in case it was necessary to respond to a possible second round effects of high inflation.

The next policy review of the Monetary Board is scheduled for March 24. It kept rates at record highs at its previous meeting on Feb. 17.

Meanwhile, the government has pledged to release fuel subsidies for the transport and agriculture sector in the face of soaring prices. It also reviews petitions to increase the minimum charge for public utility vehicles.

Apart from household spending, analysts have also warned that government spending could fall due to the Iftax burden that has increased during the pandemic.

“Public finances, already strained by pandemic relief and stimulus programs, are coming under increasing pressure, both on the revenue and expenditure side,” Bernardo said. He noted that policy proposals to reduce tariffs and other trade barriers to ease inflation problems have also hurt the government due to loss of revenue.

Last year, government spending grew at a faster pace of 7.4%, compared to 5.1% growth in 2020.

“Government spending, a key pillar of the recovery, may turn negative as the new administration faces a fiscal handicap,” ING’s Mapa said.

Outstanding debt hit a record 12.03 trillion pesos in January as government borrowing piled up due to its response to the pandemic. The country’s debt-to-GDP ratio was 60.5%, the highest since 65.7% in 2005. It is also slightly above the 60% threshold considered manageable by multilateral lenders for developing economies. .

The government has established a budget ofIfcit ceiling of 1,650 billion pula for 2022, which is equivalent to 7.7% of GDP.

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