THE Philippines is expected to see a “vigorous rebound” of economic activity once the enhanced community quarantine (ECQ) is lifted and could even bounce to as high as 7.8 percent next year, the Bangko Sentral ng Pilipinas (BSP) said.
This breath of optimism came after the government announced Thursday that the local economy shrank 0.2 percent in the first quarter of the year—the lowest recorded growth since 1998—due to the coronavirus disease (Covid-19) pandemic.
“The BSP expects a U-shaped growth trajectory with economic activity rebounding vigorously once the ECQ is lifted. A contraction ranging from 1.0 percent to 0.0 percent is forecasted for 2020. Thereafter, the economy is expected to bounce back to 7.8 percent growth in 2021,” the Central Bank said.
For the prices of goods and commodities, the BSP said these are expected to remain stable and within the expected range for this year and next year. The BSP reiterated its forecast of a 2-percent inflation rate on average for 2020 and 2.5 percent for 2021.
The 2-percent forecast for 2020 is lower than earlier projected due to the lower-than-expected print in April at 2.2 percent. The 2021 forecast, however, is higher than earlier seen due to the projected recovery in domestic economic activity and higher liquidity growth.
The BSP said its expectation of a “vigorous” economic comeback is hinged on proper health and fiscal measures in place. The BSP said these measures, along with monetary policy responses, will have to maintain a “dominant role” in the country’s response.
“Monetary policy and financial sector regulations will continue to offer support as needed to mitigate the economic impact on people and firms,” the BSP said.
Cascading impact–Diokno
For its part, BSP Governor Benjamin Diokno said they remain ready to deploy more measures if warranted by the economic situation.
The BSP has already been aggressively pushing stimulus to the economy in response to Covid-19. In a span of a little over two months, Diokno let out several monetary policy rate cuts, reductions to the banks’ reserve requirement ratio, billions in government securities purchase and early remittance of dividends.
“We expect these monetary policy measures to have a cascading impact on market interest rates, which would eventually translate to lower borrowing costs for the government, as well as for firms and people,” Diokno said in a statement on Thursday.
“The BSP is ready to use its entire arsenal of instruments in a timely manner to address the macroeconomic impact of Covid-19. In line with this, the BSP will continue to monitor market conditions for any emerging risks to our outlook for both inflation and economic activity, in order to ensure our readiness to deploy policy responses and measures, as warranted,” he added.
Diokno also gave the assurance that the local banking system is sound and adequately capitalized to withstand the crisis brought about by the ongoing pandemic.
“The Philippine banking system will be able to withstand the adverse effects and uncertainties brought about by the Covid-19 global pandemic because it is sound and resilient,” Diokno said.
“Prudential reforms have been put in place to maintain sufficient buffers in times of crisis and ensure business continuity to serve financial consumers while keeping the economy going,” he added.
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