Spending cut may slow Phl growth in H2, BSP warns

MANILA, Philippines – A deceleration in government spending could weigh down on the country’s economic growth in the second half despite the expected strong domestic demand, the Bangko Sentral ng Pilipinas said.

“Indicators for domestic demand remain firm but output conditions face downside risks,” the BSP said in a report yesterday.

The economy grew at a faster pace of 6.4 percent in the second quarter from 5.6 percent in the first three months of the year. However, the first half expansion of six percent was below the government’s target of 6.5-percent to 7.5-percent growth this year.

“The monthly survey of purchasing managers suggests that the Philippine economy was still in expansion phase in the third quarter while manufacturing companies continue to operate above the long-term average capacity utilization of 80 percent since 2010,” the BSP said.

“However, notwithstanding indications of the underlying strength in domestic demand conditions, economic activity in the second half could be dampened by a slowdown in government expenditures,” the central bank added.

The International Monetary Fund (IMF) expects the economy to grow by 6.2 percent this year, while the World Bank sees the economy expanding by 6.4 percent.

The Asian Development Bank, for its part, projected a 6.2-percent growth for the Philippine economy this year.

These projections are well below the government’s target for 2014 but Socioeconomic Planning Secretary Arsenio Balisacan earlier this month said the lower end of the goal is still very attainable.

At the same time, the BSP said the slower global economic activity could pull down Philippine output this year as reduced external demand moderate trade activity.

“Global growth prospects remain uneven. The outlook for advanced economies is generally positive, but the pace of growth across regions continues to diverge,” the BSP said.

The IMF, in its latest World Economic Outlook published last month, has cut its forecast for this year’s global output to 3.3 percent from a July projection of 3.2 percent. The Fund also lowered its 2015 global economic growth estimate to 3.8 percent from 3.6 percent.

“Economic activity in the US is projected to strengthen further, while the recovery in the euro area and Japan are seen to stay moderate,” the BSP said.

“Meanwhile, major emerging markets, particularly in China and India, are seen to recover modestly, as new policy measures and faster growth in advanced economies support domestic and external demand,” the central bank said. –Kathleen A. Martin (The Philippine Star)