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Stimulus Plan, Rate Cuts to Sustain Growth Goals

The Philippine economy will surely feel the impact of the COVID-19, especially on tourism, but the outbreak may not make many dents on the trajectory of our growth.

 

Our Cabinet secretaries and the leadership of President Duterte are not showing any signs of panic over the virus outbreak. This is encouraging because poise and a calm assessment of the situation will assure the public that the government is on top of the situation.

 

Several foreign financial institutions have agreed that the coronavirus will scale down economic growth in the Asia-Pacific region, China in particular, because of the disruption to global supply chains. But the impact will be less severe on the Philippine economy, which I believe is still poised to expand over 6 percent this year.

 

The government is pursuing the “Build, Build, Build” program without letup and creating more job opportunities in the process, an assurance that the Philippines will offset the negative effects of the coronavirus. The BBB serves as a stimulus plan that I believe will help spur household spending.

 

Finance Secretary Carlos Dominguez III is unfazed over what is happening in China and the rest of the world. According to him, increased public spending on infrastructure and social services, backed by a low inflation rate and an expansionary monetary policy, would allow the government to “dramatically increase” the pace of economic growth this year.

 

Dominguez remains optimistic about the country’s economic outlook. He sees the higher economic growth target as realistic despite the challenges posed by the Taal Volcano eruption, the African swine fever, and the coronavirus disease.

 

The unexpected challenges facing the Philippines early this year could dampen growth, but Dominguez said they would not be significant enough to change the economic targets for this year, now that the 2020 national budget has been passed on time.

 

I agree with Dominguez.

 

Accelerated government spending and a more accommodative monetary policy ensure stronger economic growth over the medium term. The Bangko Sentral ng Pilipinas (BSP) can preempt unforeseen dampeners to the economy as long as it pursues further interest rate cuts to reduce the cost of borrowing in the country.

 

The Monetary Board, the policy-making body of BSP, on February 6 trimmed the benchmark interest rates by 25 basis points to 3.75 percent amid the benign inflation environment. It reduced the interest rates on the overnight lending and deposit facilities to 4.25 percent and 3.25 percent, respectively.

 

BSP Governor Benjamin Diokno prefers to be conservative when he said last week that he saw no further cut in interest rate right now despite the spread of the novel coronavirus that some analysts say might dampen economic growth. He says any move by monetary authorities, however, will depend on the available vital economic data and latest developments. Analysts earlier noted that the spread of the disease could prompt central banks in Asia to cut interest rates to bolster economic growth.

 

I think we should be more upbeat and proactive on the economy and give it further push to safeguard its growth amid external threats. Global financial institutions, in fact, are less worried over the
Philippine economy despite the coronavirus outbreak and other external headwinds.

 

S&P Global Ratings, for instance, may have reduced its 2020 growth forecast for the Philippines to 6.1 percent from the previous 6.2 percent due to the coronavirus disease. In the same breath, however, S&P believes the Philippines will continue to outperform most of its peers in the region.

 

Its 6.1-percent gross domestic product growth forecast for the Philippines this year is higher than the 5 percent for China, 4.9 percent for Indonesia, 4.3 percent for Malaysia, 1.2 percent for Singapore and 2.2 percent for Thailand.

 

S&P sees Vietnam (6.2 percent) and India (6.4 percent) expanding faster than the Philippines this year. The rating agency predicted that the Philippines would likely grow stronger at 6.4 percent in 2021, next only to Vietnam’s 6.6 percent.

 

And if it is any consolation, S&P believes Hong Kong and Singapore will be most affected by the coronavirus outbreak, with Australia, Korea, Taiwan, Thailand and Vietnam heavily affected. Less affected by the disease are Japan, Indonesia, Malaysia and the Philippines.

 

The situation does not really look bleak despite the newspaper headlines. We have good reasons to remain optimistic.