Monetary Board upbeat on economic growth

GROWTH LIKELY remained strong in the first quarter given healthy domestic demand and supply conditions, monetary authorities noted during a policy meeting last month.

“Recent indicators of activity since… January suggest that domestic drivers of growth remain firm,” according to highlights of the Monetary Board’s March 14 meeting that were released yesterday.

On the demand side, sales of vehicles and energy were strong at the start of the first quarter, monetary officials said, while the Purchasing Managers’ Index showed favorable conditions in the manufacturing, retail and wholesale, and services sectors.

This was supported by a Senior Bank Loan Officers’ Survey in the fourth quarter of 2012, which found that banks had expanded private credit as demand for loans rose among businesses and households.

Confidence was also rising according to the Bangko Sentral ng Pilipinas’ (BSP) latest Business Expectations Survey, with companies anticipating a better first and second quarter this year.

“Growth is also likely to be supported by election-related spending and the government’s accelerated spending program,” the Monetary Board said.

On the supply side, meanwhile, the agriculture sector was buoyed by a first quarter uptick in palay and corn production as yields and harvest areas increased. This could dip from April to June, though, as farmers are reluctant to plan amid fears of an El Niño over the summer.

“The [National Food Authority’s] inventory level also remained above target. Indicators also point to stable global rice prices,” the Monetary Board said.

“Nevertheless, rice importation levels for 2013 should be carefully reviewed to ensure sufficient supply,” it added.

Gross domestic product (GDP) growth was 6.6% last year, beating market expectations and the official 5-6% target. The government is targeting 6-7% this year and monetary officials have said this was being sustained.

“As of the first quarter, the economy is still on an expansionary phase. Leading and coincidental indicators monitored by the BSP show that the economy is still growing faster, relative to trend,” Central bank Assistant Governor Cyd N. Tuaño-Amador has said.

The Monetary Board, meanwhile, saw a mild improvement in the global economy.

“Recent developments suggest that the global economy, on balance, continues to stabilize,” the March meeting’s highlights read.

The global, all-industry Purchasing Managers’ Index signals an expansion in output, it pointed out. While emerging markets continue to drive growth, the United States has started to move at a modest pace, it added.

Market sentiment remains cautious, though, given uncertainties.

“Meanwhile, economic conditions in the euro area have broadly stabilized, although the broad outlook for the region remains on the downside due in part to lingering financial market uncertainty,” said the Monetary Board, which also noted that prospects in Japan remained weak.

“Moving forward, global economic growth would likely remain subdued, but recent monetary policy actions by central banks in advanced economies are expected to provide ample support to economic activity,” it said.

During the March 14 meeting, the Monetary Board kept policy rates steady, as expected, but also delivered a fresh special deposit account (SDA) rate cut and slightly higher inflation estimates.

The BSP’s policy-making body maintained overnight borrowing and lending rates at record lows of 3.5% and 5.5%, respectively, and slashed SDA rates by 50 basis points to 2.5% across all tenors — following up on cuts in January.

Higher than expected consumer price increases in recent months, meanwhile, prompted monetary authorities to forecast 3.3% inflation for 2013 and 2014 from 3% and 3.2% previously. –Diane Claire J. Jiao, Senior Reporter, Businessworld