Growth potential improving

Published by rudy Date posted on January 18, 2013

THE COUNTRY’S growth potentials have improved given an expansion of productive capacity and better inflation expectations, a Bangko Sentral ng Pilipinas (BSP) official said.

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“We have seen preliminary indications to suggest that the potential growth of the economy seems to be strengthening,” central bank Assistant Governor Cyd N. Tuaño-Amador said in an interview.

She explained that investment, particularly from the private sector, drove growth in the past few quarters, and that full-time employment had also received a boost.

“They are modest steps, baby steps, but the potential growth of the economy is slowly changing, slowly rising from the old path of 4.75-5%,” she claimed.

Gross domestic product (GDP) — the broadest measure of the economy — grew by a better-than-expected 7.1% in the third quarter with an expansion seen across agriculture, industry and services. This took the nine-month gain to 6.5%, exceeding the full-year target of 5-6%.

Consumer prices, meanwhile, have remained low and stable despite the rapid growth. Inflation averaged 3.2% last year, the slowest since 2007’s 2.9%. It likewise marked the fourth straight year that the BSP was able to keep inflation within its 3-5% target.

“There seems to be favorable structural dynamics at work that have already changed the inflation mindset of those who set prices, such as firms and employers,” Ms. Amador said.

The central bank, she claimed, has shown that it is a “credible inflation fighter.”

“The price-setters know the BSP can fine-tune policy settings so that, while from time to time the economy will be visited by some shocks, they know the central bank will have the appropriate responses.”

University of the Philippines economist Benjamin E. Diokno, meanwhile, has a slightly different view

“High inflation is associated with high growth if the economy is operating at or near full capacity,” the former Budget secretary said.

“The economy managed to grow at above its long-run growth without triggering high inflation because the economy has excess capacity — excessive idle plant capacity and high unemployment and underemployment,” he added.

Inflation is expected to ease further in 2013, settling at 3.1% — down from the BSP’s earlier forecast of 3.9%. — D. C. J. Jiao, Businessworld

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