Wanted: A durable solution to Philippine economic imbalances

November 5, 2018

MANILA - A recent softening in food and fuel prices indicate that inflation in the Philippines is nearing an inflection point, according to an ANZ Bank research note, which says the Government's decision to suspend the fuel excise tax increase in 2019 and the likely passage of the rice tariffication bill bode well for the economy.

"At the same time, a durable reduction in inflation is also contingent on a moderation in domestic demand," the note says. "Overall domestic demand continues to be buoyant, despite the slowdown in Q2 2018 GDP growth, largely an outcome of a larger drag from net exports.

"A tighter fiscal stance via reduced spending would go a long way in durably lowering inflation and resolving other imbalances, including a wider current account deficit and sustained high credit growth.

"We are of the view that current expansionary fiscal policy has considerably offset the impact of aggressive monetary tightening in recent months." www.live.anz.com(ATI).