City Buildings during Orange Sunset by Luis Enrique Carvajal.
Philippines Q2/2019 GDP growth registered at 5.5%, lower compared to the previous year’s 6.2%. It was already seen that the delay in government spending, due to delayed passage of the P3.7 trillion 2019 budget, would have an effect on the said growth. Also, the Contractionary Monetary Policy (lowering of the money supply) last year is seen to affect the growth number as well. The eagerness of the government to tame inflation, by increasing the interest rate, could have tamed the economic growth in effect; but on the positive note, inflation has significantly declined on average from 5.13% in 2018 to 3.40% in 2019. Now that the growth number seems out of projection, the central bank (BSP) might cut the interest rate, to boost the money supply, to stimulate the economy. But this could be a double-edged sword scenario - unwarranted economic stimulation could push the price up which is not good for the economy.
I think it is very important for the central bank to consider the price of basic goods before it acts on the rate cut, especially today that we are in the midst of typhoon season, where the supply of some agriculture products might decline – which could result for prices to go up. Increasing the money supply while the supplies of goods are declining could backfire on inflation.
If there is something to be monitored, I think that is the timeline of government projects from conceptualization to implementation stage. Good execution of the Expansionary Fiscal Policy could boost economic growth.
It is noteworthy to mention as well, that government needs to encourage investments in the agriculture sector since it is the backbone of our economy; if we have an abundant supply of agriculture products, there would be less pressure on prices when money supply is increased. Also, increasing the supply of energy, by building renewable energy plants, would lower the cost of energy and would serve as a balancing agent in times of inflationary pressures.
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