The Philippine economy will have to contend with the risks that may still arise from the United States’ tapering program and China’s economic slowdown to keep an even keel toward its own growth target this year, the central bank warned.
While prospects for the Philippine economy remain positive even after gross domestic product (GDP) lost steam in the first quarter to a lower-than-expected 5.7 percent rate of expansion, compared with 7.7 percent a year earlier, the path to growth may yet present new humps during the remainder of 2014, it said over the weekend.
“We may still be able to achieve the government’s [6.5 percent to 7.5 percent] target, although growth could settle at a more moderate pace [partly due to waning base effects],” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in an e-mail to reporters.
The BSP Governor then added a note of caution: the outlook for the domestic economy is not without risks.
“Global financial conditions could tighten as the US Federal Reserve continues to taper its quantitative easing program. Slower growth in China could impact regional supply chains and pose challenges to Philippine export growth,” he said.
The Fed continued to cut its monthly purchases of US Treasuries and mortgage-backed securities by a further $10 billion to $45 billion in May from an original $85 billion a month, the fourth reduction by the US central bank in its monthly quantitative easing program.
Meanwhile, the Chinese economy—which ranked third in terms of the top destination of Philippine exports in March—is seen moving marginally lower over the next two years.
Tetangco tempered his warning with a forecast that favorable business and consumer confidence readings, robust credit growth, stronger export demand due to a pickup in global growth, and fiscal stimulus from reconstruction and rehabilitation spending will continue to underpin domestic activity this year.
The BSP’s recent Business Expectations Survey showed that businesses remain optimistic about the Philippne economy, with the confidence index (CI) staying at a high level of 48.9 percent, which indicates that firms anticipate continuing economic expansion for the third quarter of the year.
A separate reading of the Consumer Expectations Survey showed that consumer sentiment also remained hopeful, with the CI up 19.3 percent for the year ahead.
Credit growth, as reflected by bank lending, sustained its fast pace in April as loans for productive sectors of the economy rose further.
Philippine merchandise exports kept their double-digit growth rate in March for a second month as earnings jumped 11.2 percent to $5.2 billion.
Tetangco also pointed to sustained growth in investment, which he said indicates domestic demand remains firm enough to help the economy regain some momentum in the months ahead.