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  • Writer's pictureMelo Acuna

Domestic economy contracts again

Inflation average at 2.6 percent; domestic economy contracts again in Q3 last year

MANILA – The Bangko Sentral ng Pilipinas today reported the country’s inflation rose to an average of 3.1 percent in Q$ 2020 compared to year at 1.6 percent and quarter-ago rate of 2.5 percent. This brought the full-year average inflation rate to 2.6 percent within the National Government’s target range of 3.0 percent ± 1.0 percentage point for the year.

In a statement released today, the BSP said Food inflation drove the faster inflation during the quarter as adverse weather conditions and supply distribution bottlenecks led to higher prices of agricultural products.

The core inflation was steady at 3.2 percent in Q4 2020 from the previous quarter as preliminary estimates of alternative core inflation measures computed by the BSP showed mixed trends during Q4 2020.

The BSO’s survey of inflation expectations of private sector economists as of December 2020 shows slightly higher mean inflation forecasts for 2020 and 2021 relative to the September 2020 survey. Analysts expect inflation to remain benign in the near term, with risks to the inflation outlook tilted to the upside as the economy gradually reopens. The identified risks to inflation include food supply disruptions due to the weather disturbances and a rebound of global oil prices as well as the downside risks to inflation from the subdued domestic demand and the impact of commodity prices and from the strong pesos against the US dollar.

It was also reported the domestic economy contracted anew in the third quarter of 2020 as real gross domestic product (GDP) fell by 11.5 percent year-on-year in Q3 2020 after a 16.9-percent contraction in Q1 in 2020. The year-to-date GDP was 9.7 percent contraction. Household consumption and investment improved with the partial reopening of the economy as the government spending eased. On the supply side, the agriculture sector slightly expanded while output in the services and industry sectors declined at slower rates.

The BSP said the high frequency indicators should subdued demand. The composite Purchasing Managers’ Index or PMI for November 2020 remained below the 50-point expansion threshold.

Meanwhile, the global economic activity shows signs of modest growth as real GDP in the US, euro area, Japan and India, manifested single-digit contractions in Q3 2020, a significant improvement from their double-digit declines in the previous quarter. The latest PMIs in the countries also displayed general optimism. Economic activity in China expanded during Q3 2020 which shows a sustained recovery from the pandemic. (Melo M. Acuna)

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