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Slower Inflation makes ‘Strong’ GDP growth

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The Philippines can maintain above-six percent economic growth in the coming years according to Moody’s Analytics because the price pressures are now finally easing.

With the slower inflation, this would help the Philippines to stay on track to be among the fastest-growing economies in the region even with slowed noticeably growth of 6.1% in the third quarter, coming from 6.2% in April-June and 6.6% logged in January-March.

Socioeconomic Planning Chief Ernesto Pernia said that the economy would have grown much faster had it not been for inflation, which averaged 6.2% in the July-September period. This has eroded household spending, which has long been the key driver of economic activity.

“Beyond the weaker peso, the acceleration in inflation has also been driven by higher food prices, which have been affected by adverse weather conditions. Higher oil prices have also played a role, as has an increase in excise taxes such as for tobacco and alcohol,” according to Moody’s.

Moody’s Analyst explained, that they expect price pressures to gradually ease in 2019, since the food supply has improved and the transitory impact of the tax increases fades. Rate hikes this year by Bangko Sentral ng Pilipinas (BSP) should also help to tame inflation.

With the inflation steadied at 6.7% in October from the previous month’s nine-year peak, the central bank officials validated the observations that price increases are “finally moderating” and hopefully continues in the coming months.

The 2018 inflation has caused alarm and concern for many people in various sectors which became the second highest after more than 9 years with a record of 7.3%. But the Central Bank is bullish that the inflation will settle back to 3.5%.

Furthermore, the Moody’s Analytics is also confident that the dollar influx and the direct  foreign direct investments would support further growth. “The economy still benefits from one of the youngest populations in the region, as well as steady inflows of overseas worker remittances and a strong business outsourcing processing industry.”

The GDP growth averaged in the first three quarters was 6.3%. The economy needs to expand by seven percent this quarter to even hit 6.5%.

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