The Bangko Sentral ng Pilipinas (BSP) said mixed policy settings in advanced economies and uncertainty in government spending may continue to pose risks to the Philippine economy this year.
“2015 will likely bring continued economic challenges for the Philippines,” BSP Governor Amando Tetangco Jr. said in a remarks during the Tuesday Club meeting.
Tetangco said an improving United States economy, coupled with expectations that its central bank, the Federal Reserve, will end its easy monetary policy this year helped create a sound base for an outlook for a strong dollar, causing emerging market economies to revert to depreciation mode.
He noted that in the case of the European Central Bank (ECB) and the Bank of Japan (BOJ), monetary authorities were not quite as ready as the Fed to pull the plug on liquidity.
The BSP governor added that monetary actions of the ECB and the BOJ were seen failing to stimulate their economies to grow, prompting both central banks to express a willingness to continue more aggressively engage in further quantitative easing.
Meanwhile, the prices of oil had dropped to $57 per barrel by end of 2014, falling to about half from the year’s-high of $115 in June, he said.
“With this as global economic backdrop going into the new year, I am not sure 2015 would be any easier to call.,” he said, adding that global growth prospects also remain uneven.
Tetangco said the unevenness of global growth prospects, in turn, could provide the motivation for continue divergence in the monetary policies among the advanced economies.
In the domestic front, the BSP governor said it remains critical that government ramp up spending to provide the vital infrastructure projects that will sustain economic growth in the medium term.
To help ensure that the Development and Budget Coordinating Committee’s gross domestic product growth target of 7 percent to 8 percent this year will be achieved, Tetangco said the national government must increase spending.
“Nonetheless, the country appears to be well-placed to deal with these tests. For our part, the BSP will remain focused on carrying out our mandate to maintain price and financial stability while supporting sustainable economic growth,” he said.
The BSP governor assured that the central bank have sufficient policy space to deploy monetary tools as and when needed, while the banking system remains stable and able to intermediate funds to the productive sectors of the economy.
He also added that the country’s external payments strength continues to provide some cushion against shocks from external sectors.