The Philippine economy as expected grew more slowly in the second quarter of the year, weighed down by the delay in the approval of the 2019 budget, an anemic agricultural sector due mainly to El Niño, and the ban on construction activities during the mid-term elections,
The economy just expanded by 5.5 percent in the April-to-June period from 5.6 percent in the previous quarter. The weak expansion puts tremendous pressure on the government to stimulate the economy in order to achieve the 6-percent to 7-percent growth target this year.
The government faces a tall order in getting the economy back on track. Economic Planning Secretary Ernesto Pernia has conceded that the Philippine economy must expand by an average of at least 6.4 percent in the second half to reach the low-end of the full-year growth target. The country's economic managers and the governor of the Bangko Sentral ng Pilipinas know the drill. They will have to stimulate or pump-prime the economy to achieve the growth objective.
The Monetary Board of the Bangko Sentral just reduced the borrowing rate by 25 basis points to 4.25 percent amid low inflation and the sluggish economic growth. The move aims to spur borrowing by companies through lower interest rates to fund their expansion. The rate cut, along with an expected infusion of liquidity into the financial system within the year, will lower the cost of funds and serves as an incentive to hire more workers through expansion.
The government will also have to step up spending, especially on infrastructure projects, in order to catch up on the backlog during the first five months of the year. Public construction, according to government data, dropped 27 percent in the second quarter and offset the growth of private construction. President Rodrigo Duterte was able to sign the P3.7-trillion national budget for 2019 only in April after a couple of months of impasse between the two houses of Congress.
The outlook on the global economy, meanwhile, is not upbeat amid the trade tension between the US and China. But the local economy is holding on. Household spending remains strong and it's just a matter of pushing the right buttons to spur the economy.