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‘Car sales recovery a good sign’

July 13, 2019

THE sales recovery seen in the automobile industry last month is a sign that economic conditions in the country are improving, according to an economist.

“With inflation falling back within target, and with the BSP (Bangko Sentral ng Pilipinas) initiating the first round of rate reductions in May, we’ve seen an improvement in vehicle sales as purchasing power has been restored somewhat and financing costs have begun to ease,” ING Bank Manila Senior Economist Nicholas Mapa said on Friday.

The Chamber of Automotive Manufacturers of the Philippines Inc. and the Truck Manufacturers Association reported on Thursday that the number of cars sold grew by 8.7 percent to 31,950 in June from 29,395 a year ago and by 3.07 percent from 30,988 in May.

The Philippine Statistics Authority reported earlier this month that headline inflation decelerated last month to 2.7 percent — well within the government’s 2- to 4-percent target range — from 3.2 percent in May and 5.2 percent in June 2018.

In May, the central bank’s policymaking Monetary Board trimmed interest rates by 25 basis points — resulting in overnight borrowing, lending and deposit rates to fall to 4.5 percent, 5 percent and 4 percent, respectively — on the back of easing inflation. It decided the following month to take what it called a “prudent pause” and kept those rates as is.

“We can expect a slight improvement in car sales should these developments continue, but the heyday of double-digit growth on double-digit growth seen in 2015 to 2017 [would] likely be quite a challenge to replicate,” Mapa said.

Car sales in those years grew by 23 percent and 17 percent, respectively.

“The recovery in vehicle sales is a welcome sign that growth has begun to rebound in 2019 after the sharp slowdown in 1Q (first quarter), induced by the budget delay and as the ill effects of BSP’s aggressive rate hike cycle continue to feed into the greater economy,” Mapa explained.

A dispute between the Senate and the House of Representatives over alleged insertions caused a four-and-a-half-month delay in the passage of the 2019 national budget, forcing the government to operate on a reenacted budget in that period.

As a result, Philippine economic growth slowed to 5.6 percent in January to March from 6.5 percent in the same quarter in 2018.

Mapa also said that, in terms of growth, capital formation may improve with the government finally passing this year’s budget, leading to increased take home pay for government employees, while the BSP has slashed borrowing costs and banks’ reserve requirement ratio in the second quarter.

“However, successive months of negative road-vehicle imports may mean that car dealers have been drawing down on unsold inventory, which could limit the impact on overall capital formation,” he added.

Credit belongs to : www.manilatimes.net


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