Growth momentum to stretch till 2012 – BSP

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) sees the country’s strong economic momentum stretching until next year on the back of robust domestic demand and rising capital formation.

In a speech delivered on behalf of BSP Governor Amando M. Tetangco Jr., BSP Deputy Governor Nestor Espenilla Jr. said the country’s domestic output as measured by the gross domestic product (GDP) would expand between seven percent and eight percent this year and next year.

Espenilla said monetary authorities see the country’s merchandise exports expanding by nine percent to 10 percent this year and by 12 percent next year after surging by 33.8 percent last year.

Imports, on the other hand, would grow by 17 percent to 18 percent this year and by 18 percent next year after jumping 26.9 percent last year.

The BSP official said strong domestic demand and rising capital formation would continue to be a steady source of economic growth this year and next year.

“The Philippines is riding on demographic dividends. We have a young, economically-active and educated population. And this segment of the population is consuming. Private consumption has indeed supported economic growth. In addition, capital formation, which performed poorly in the past, has been making inroads in recent quarters,” he stressed.

He cited the robust remittances from overseas Filipino workers that provide a major funding source for private consumption.

He added that the rising capital formation for the past few quarters implies that a structural shift could be taking place that could translate to an improvement in the country’s productive capacity.

According to him, the Aquino government’s push towards implementing priority projects under the public private partnership (PPP) scheme would provide substantial boost to the investment climate by developing critical infrastructure without compromising fiscal reforms.

Espenilla also cited that the actual output levels of the Philippines have been higher than the potential output since 2004, showing a marked change from years before when the country was always producing below potential.

“In order for us to exploit this phenomenon, we need to raise the economy’s potential output. This will avoid a situation where demand outstrips capacity,” he said.

Furthermore, he added that the economy needs to increase or improve its stock of physical and human capital resources and become more efficient in the use of factor endowments to ease inflationary pressure over the medium- to the long-term.

The Philippines posted its strongest growth since 1976 after its GDP expanded by 7.3 percent last year after avoiding a recession in 2009 when its domestic output slackened to 1.1 percent from 3.8 percent in 2008 due to the full impact of the global financial crisis.

The feat was achieved amid a stable inflation environment after the consumer price index averaged 3.8 percent last year well within the target of 3.5 percent to 5.5 percent.

“In 2010, the Philippines achieved the ideal convergence of high growth and low inflation – a position of strength indeed…. and one which provides a foundation for my earlier assertion that sustained growth is achievable going forward,” Espenilla said.

Multilateral lenders International Monetary Fund (IMF) and Asian Development Bank (ADB) sees the country’s GDP growth easing to five percent this year.

Espenilla said IMF sees the global economic recovery to further solidify but would continue to be uneven resulting to strong capital into emerging market economies including the Philippines from advanced economies.

“It is expected that foreign capital will continue to flow into the economies that have brighter growth prospects. The Philippines is among those countries that are expected to grow faster than others,” he said.

According to him, monetary authorities would closely watch the inflows to prevent further build up in inflation pressures. –Lawrence Agcaoili (The Philippine Star)