As the US economy continues to recover and oil prices remain low in global markets, growth in the Philippine economy will be relatively safe from the external risks posed by weak demand from other advanced economies (AE).
The Philippines faces economic headwinds from the subdued prospects in Europe, China and Japan, according to “The Report on Economic and Financial Developments for First Quarter 2015” released by the Bangko Sentral ng Pilipinas on Monday.
On a positive note, however, such risks may be tempered by optimism from favorable crude oil prices and a stronger outlook for the US economy.
“Against the present global outlook, a key challenge to the Philippine economy is the downside risks to external demand which could affect the country’s export activity as growth in AEs remains uneven. The recovery in the US could boost the country’s external balance through export receipts and remittance inflows,” the report read.
“However, this could be moderated by the growth outlook for the EU and Japan, as well as the relatively subdued prospects in EMEs, particularly China,” it added.
The Development Budget Coordinating Committee (DBCC) is retaining its growth goals—7 percent to 8 percent—for 2015 and 2016, despite the slower 5.2 percent economic output in first quarter.
The government is confident that the economy will still reach its 7 percent to 8 percent goal despite economists’ lower forecasts and the possible review of growth prospects by global financial institutions.
“Given the prospect of the US Fed’s normalization of monetary policy, the Philippines could also face tighter financial conditions as a result of volatility in the global financial markets,” the BSP said.
“Nevertheless, the possible tightening of financial conditions may be partially counterbalanced by the continued monetary accommodation in the EU and Japan,” it added.
The Philippine economy is still expected to grow for the rest of the year, given that the remedies to certain “structural bottlenecks” are being addressed.
“A critical domestic challenge, moving forward, is addressing structural bottlenecks, particularly infrastructure challenges, to lift investment and realize new growth sources,” the report read.
To address the infrastructure gap, the national government claimed it has been ramping up and accelerating spending on the fiscal side and on through the private publicprivate partnership (PPP) scheme.
“For its part, the BSP will continue to be datadependent in its assessment of evolving price and output developments to ensure that the monetary policy stance remains consistent with ensuring price and financial stability while supporting sustainable economic growth,” the central bank said.
“In addition, the BSP remains prepared to deploy a menu of policy actions, as needed, to rein in inflation expectations even as previous monetary responses continue to work their way through the economy,” it added.
The Philippines has been the second strongest economy in Asia next to China over the past three to four years.
Slower GDP growth in the first three months of 2015 was attributed to government underspending.