The economy is facing downside risks in terms of local output, measured as the gross domestic product (GDP), as the government has proven reluctant to spend even as global growth remains tepid, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
In the minutes of the Monetary Board (MB) meeting on October 23 and released on Thursday, the MB said economic growth might have slowed in recent months.
“Notwithstanding the indications of underlying strength in domestic-demand conditions, economic activity in the second half could be dampened by a slowdown in government expenditures,” the BSP said.
“Slower global economic activity could also exert a downward pull on external demand,” it added. A regional banking giant, likewise, cited the feeble fiscal spending that compelled the economic managers to revise the forecast output growth in the third quarter of the year.
In an e-mail sent to reporters, DBS Bank economist Gundy Cahyadi said they have lowered their third-quarter GDP assumption from 6.9 percent to 6.7 percent for this year.
“We had expected third-quarter GDP at 6.9 percent year-on-year earlier, but it may come in slightly lower than that. There is some drag from fiscal spending, which has actually shrank on a year-on-year basis, despite fiscal revenues coming in strong during the period,” Cahyadi said.
The economist also noted similar gains such as the underlying support from private consumption and strong remittance flows.
The central bank also said the Philippine economy is still in an “expansion phase” despite the downside risks, saying that manufacturing companies continue to operate above the long-term average capacity utilization of 80 percent in the third quarter of the year.
The Philippine Statistics Authority is expected to release the third quarter output expansion numbers by the end of the month.
The government has targeted growth for 2014 ranging from 6.5 percent to 7.5 percent, higher than last year’s 6 percent to 7 percent.
Latest data shows the $270-billion economy already expanded by 5.6 percent in the first quarter and by 6.4 percent and in the second quarter, bringing the country’s first half-growth to 6 percent.
This means that the country must grow by 7 percent in the next two quarters to hit the low end of the target for this year.
If the country’s GDP growth rate comes at 6.7 percent as predicted by the DBS Bank, the economy must accelerate growth to 7.3 percent in the fourth quarter to hit 6.5 percent for 2014.