Economy remains sensitive to global downturn - BSP

MANILA, Philippines - Despite its resilience, the Bangko Sentral ng Pilipinas (BSP) said the Philippine economy is still sensitive to a deeper and protracted global economic downturn requiring prompt and decisive policy action.

BSP Governor Amando M. Tetangco Jr. warned yesterday that although the economy is expected to continue growing this year, the country is still faced with external threats.

Speaking before the forum hosted by the Financial Executives Institute (Finex), Tetangco said the efficient and well-capitalized banking system has created a stable environment that shielded the economy from the backlash of collapsing financial markets abroad.

Tetangco said private consumption remained the economy’s major driver of growth, expanding at an average of 4.4 percent in the last 10 years and has so far remained sturdy despite fears of a global recession.

“The critical question is whether the global stresses would affect domestic consumption but there are factors that make consumption resilient,” Tetangco pointed out.

According to Tetangco, the country’s demographic profile was critical in the form of young and economically active population and a strong portion of the labor force had the propensity to spend.

“So strength of domestic economy has put us in a good position to weather these external challenges,” Tetangco said.

However, Tetangco admitted that even the resilient economy could only put up with so much. If the global recession became deeper and lasted longer than expected, he said the economy is vulnerable.

Tetangco said this called for a prompt and decisive policy action, especially confidence-boosting measures that would ensure investors and consumers alike that the economy would not tank.

“In the Philippines, this is the fruit of purposeful reform,” Tetangco said. “As long as confidence is maintained, the economy will remain afloat. We need to continue to plant the seeds of economic resilience.”

Tetangco said the BSP itself has moved to provide the impetus for growth by allowing more liquidity into the system and specifically, banks have been given temporary regulatory relief.

“The main challenge is to ensure our regulatory regime will respond to risks,” Tetangco said. “Another important response was the external sector policy. To help shield the economy, we allowed market forces to continue to determine the exchange rate while keeping volatility manageable.”