Consumer spending to spur economy

Consumer spending will continue to bail out the economy in the midst of a slowdown in the global economy and the prevailing weaknesses in key economic sectors, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

The BSP noted that despite signs of improving economic activity, overall domestic demand remained subdued, evident in sluggish bank lending and weak corporate credit demand.

According to the BSP, the manufacturing sector is operating way below capacity, leaving about 30 percent of its existing capacity idle and unutilized.

During its recent meeting, the BSP’s Monetary Board noted that the global slowdown has begun to show indications of bottoming out but not enough to convince economic planners that a full recovery is underway.

"Questions have remained about the pace of the recovery and its durability," the MB noted.

According to the MB, this meant that domestic demand will continue to be the main source of impetus for economic expansion in the near term.

"Domestic demand should, thus, be the focus of supportive macro-economic policies," the MB said.

"Consumer spending has gone up consistently, often serving as the cushion against external shocks that threaten to hamper overall growth. Spending is fueled mainly by dollar inflows from overseas contract workers who remit money to their families from abroad," the MB said.

According to the MB, however, the presence of downside risks to future inflation and inflationary expectations provided a case for "navigating carefully" in order to maintain stimulus for growth while guarding closely against inflationary threats.

The MB said inflationary threats were still present, especially with uncertainties over the impact of the El Niño weather phenomenon on agricultural crop production in 2003.

The MB said there was also lingering uncertainty in the direction of world oil prices and the expected adjustment in power and water rates as well as the possible increase in transport charges.

"Moreover, the present scope for monetary easing has also been capped by the fact that policy rates have already been reduced to a significant extent over the past year," the MB reported.

Inflation rate this year has been going down from a high of 3.6 percent in April to 2.6 percent in July.