The Philippine economy met the expectations of several analysts after expanding 6.8 percent year-on-year in the first quarter of 2018. The performance made the Philippines one of the fastest expanding economies in Asia, tying it with China and only trailing Vietnam, which grew 7.4 percent in the same period.
Increased government spending anchored on the state’s ambitious “Build, Build, Build” infrastructure program boosted the economy in the first quarter. Construction activities, mostly on roads, toll roads, railways and airports, directly create jobs and, in turn, fuel consumer spending.
Such spending or economic demand prompts factories to increase production and companies to expand their services. The industrial sector recorded the fastest growth of 7.9 percent in the first quarter, followed by services which expanded 7 percent.
The rapid economic expansion, however, has attracted an unwanted guest—rising inflation. Economic Planning Secretary and National Economic and Development Authority director-general Ernesto Pernia conceded that the economy could have expanded faster if inflation was more subdued during the period. Inflation in the first quarter averaged 3.8 percent based on the 2012 price index, near the upper limit of the target range of 2 percent to 4 percent for the year.
Real economic growth during the three-month period, according to Pernia, could have been nearer the government’s growth rate target range of 7 percent to 8 percent. Inflation, he noted, was the spoiler and the number one concern expressed by Filipinos in surveys.
Higher prices tend to curb the spending pattern of Filipinos. Higher taxes introduced at the start of the year, while strengthening the fiscal position of the government, led to the increased prices of some basic items. The inflation rate in April further accelerated to a more than five-year high of 4.5 percent from 4.3 percent in March, due mainly to the faster price increases of alcoholic beverages and tobacco, or the so-called “sin products.”
The government expects the impact of the new taxes on prices to be transitory. But global developments say otherwise. Oil prices in the international market climbed to over $71 per barrel Thursday, a level not seen in over three years.
The Bangko Sentral ng Pilipinas, meanwhile, immediately raised the interest rates on loans, to prevent so-called potential second-round effects of rising inflation. Reining inflation by raising the cost of money without curbing economic growth will be a delicate balancing act that the economic managers must perform.
