Philippine economic growth may slowdown this year if there is no significant improvement in government and private sector spending, an economist said.
In a research note, Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said that while growth in government consumption accelerated mildly in 2013, the contraction in the fourth quarter of the same year was a “huge disappointment” compared to the double-digit print for the first nine months of the year.
“Government officials from the President down to the mayoral level may have remained circumspect to spend aggressively given the pork barrel controversy despite the urgent need to spend for rescue and rehabilitation in the disaster-struck areas of the economy,” he said.
The BPI economist explained that the sharp quarterly slowdown in imports helped compensate for the contraction in government consumption, from a peak of 17 percent in the second quarter and declining by 5.2 percent in the fourth quarter.
Capital spending, on the other hand, posted a 5.7-percent increase in the fourth quarter against the peak of 44.5 percent in the first quarter, while household consumption went up by 5.6 percent in the fourth quarter from 6.2 percent in the third quarter.
“Unless private and public sector capacity building efforts accelerate sharply this year, overall output [real gross domestic product growth]in FY [fiscal year]2014 is likely to slow down by roughly a full percentage point [+6.2 percent],” Neri said.
The Philippine economy remains one of the best performing economies in the Asian region, growing by 6.5 percent in the fourth quarter of 2013, placing the full-year gross domestic product growth at 7.2 percent.
This year, the government is targeting a higher GDP growth of 6.5 percent to 7.5 percent.
Neutral monetary policy
Meanwhile, the BPI economist is not seeing any adjustments in the monetary policy of the Bangko Sentral ng Pilipinas (BSP) for the first half of the year on the account of within-target inflation rate.
“With inflation staying well-within BSP’s 2014 target and GDP growth expected to slow down further in 1H [first half]2014, BSP would probably prefer that headline monetary policy remains neutral during the same period,” he said.
Inflation rate is one of the factors that the central bank takes into account in its policy-setting mandate, which influence the rates that local banks charge on their loans.
The BSP has kept its key policy rates since October 25, 2012, wherein it reduced the interest rate for the reverse repurchase facility from 3.75 percent to 3.5 percent, while overnight lending or repurchase facility was retained at 5.5 percent. Reserve requirement ratios were kept steady as well
The central bank is seeing a higher inflation rate for 2014 at 4.5 percent, and 2015 at 3.2 percent, still within its 3-percent to 5-percent target band but higher compared to 2013’s average inflation rate of 3 percent.