‘Economic fundamentals remain solid’

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the country’s economic fundamentals remain solid despite external risks and challenges.

 “The domestic economy continues to expand above historical average. Household consumption is expected to remain steady and growth in services sustained,” the central bank said in its latest Report on Economic and Financial Developments.

 “The favorable trends in the manufacturing sector indicate the potential resurgence of the industry sector, which can potentially transform the sector into a major driver of growth in the Philippines,” the BSP said.

Philippine economic growth slowed to 5.3 percent in the third quarter from six percent in the second quarter. This brought the nine-month expansion to 5.8 percent, way below the 6.5- to 7.5-percent target for the full year.

 “The near to medium-term economic outlook remains uncertain, with risks largely external,” the central bank said as growth in different economies and markets remain uneven.

Recovery in the US and the slower but still strong performance of emerging Asia countries have driven global growth, the BSP said. However, it said dim prospects in the euro area, Japan, and emerging markets in Latin America and the Middle East continue to weigh down global economic  output.

 “Second, the uncertainty surrounding the timing of the US Federal Reserve’s shift towards monetary policy normalization indicates that capital flow volatility could materialize anew, which could affect financial markets,” the central bank said.

A possible “hard landing” in China and a sustained weaker growth in advanced economies were also tagged as risks as they could slacken trade activities even in emerging economies including the Philippines.

 “On the domestic front, operational constraints related to weak absorptive capacity of operating agencies, administrative bottlenecks in the implementation of key programs along with changes in the budgeting system remain,” the central bank said.

At the same time, the country has time and again faced the risk of short-term disruptions in activities due to weather-related events and power shortages.

 “Amid downside risks and challenges in the external environment as well as bottlenecks in the domestic front, the BSP will continue to pay close attention to the outlook for inflation and growth to ensure that monetary policy settings remain consistent with price and financial stability,” the central bank said.

Monetary authorities earlier in the year raised key policy rates to ensure inflation will remain within the three- to five- percent target for the year and the two- to four-percent band for 2015 and 2016.