THE Philippines is in a “significantly different” situation than the rest of the world in dealing with global shocks due to its strong fundamentals, the Financial Stability Coordination Council (FSCC) said in its recent report published on Tuesday.
Bangko Sentral ng Pilipinas Governor and FSCC Chairman Benjamin Diokno said their assessment of the country’s financial stability showed that the Philippines is in a “position of strength” to handle the “fast-evolving shocks” in the global market.
“The Q1 2022 year-on-year GDP growth of 8.3 percent reflects a trajectory that is markedly different from the prognosis [of multilateral agencies] for 2022 global growth,” Diokno said.
“Our growth is driven by current purchasing power as well as by economic investments for the future,” he added.
For purchasing power, Diokno said consumption expenditures per person in the first quarter of 2022 are now higher than the comparative figure in March 2020 when the country began to face the challenges from Covid-19.
“This is supported by the recovery in employment, with a labor participation rate of 63.4 percent and an employment rate of 94.3 percent,” the governor said.
For economic investments, Diokno said they expect the productive capacity of the country to have been enhanced with growth in fixed capital formation.
“This mirrors the expansion in the industry sector, particularly in manufacturing and construction, which grew by 10.1 and 13.5 percent, respectively. Economic activity in utilities, which is a direct indicator of demand, likewise grew by 5.8 percent in real terms,” Diokno said.
FSCC, however, still cited external risks that may affect the economy, particularly citing two key developments: repricing risks and developments in the oil market.
According to the Council, these risks have far-reaching consequences because they may affect leverage, liquidity, the macroeconomy and the country’s climate change initiatives.
Diokno said rising inflation in advanced economies has led their central banks to raise policy rates to temper economic activity. This is not the situation in many emerging markets, but the rate increases are expected to spill over to the rest of the world.
“Rising interest rates benefit savers and those who wish to invest in financial instruments, but this gain will be met by higher costs for borrowers, covering households, businesses, and the government. Those holding marketable assets will also experience a revaluation loss,” the governor said.
“Oil is another challenge, and its effects are evident in rising pump prices. While this is raising domestic inflation, the issue is not typically addressed by monetary tools,” he added.