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Infra underspending to result in lower GDP

Philstar.com/File photo

MANILA, Philippines - The Aquino administration’s underspending is seen to be a major threat to the country’s growth, the Australia and New Zealand Banking Group Ltd. said.

“Unless public spending fires up, risks to Philippine full-year economic growth outlook skew to sub six percent for the full-year 2015,” ANZ said.

While still tagging the Philippines as the “strong man of Asia,” the ANZ expressed concern that GDP growth could weaken if public underspending especially in the infrastructure side would continue.

 “Philippines growth below six percent will be both an unusual and an unexpected event,” it said in a report.

The government expects the local economy to grow by six to seven percent this year.

ANZ said even if investors turn negative on growth in the short term, growth differentials would be minimal as foreign investors might return to the market as opportunities become enticing. But improvement or otherwise in the fiscal balance occurring as a result of fiscal underspending would be considerable, it added. With remittances providing a structural current account surplus, renewed public spending should serve to add to the resilience of the Philippines as the US Fed tightening cycle commences.

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Likewise, the upcoming presidential election could fire up public spending. But in the absence of this, a growth/ fiscal balance trade-off falls into place, ANZ said.

 “The strong man of Asia seemed a little bit unsteady on his feet over the first quarter of 2015,” ANZ said.

The Philippine economy slowed to 5.2 percent in the first quarter mainly due to state underspending.

Economic growth made a considerable downside surprise in the first quarter on the back of weak net exports - which the bank views as being aligned to the soft US GDP profile over the same period – and ongoing weakness in government spending.

With inflation seen to ease in the coming months, ANZ expects the Bangko Sentral ng Pilipinas to maintain its key policy rates for the remainder of the year.

For 2016, the foreign bank is forecasting Philippine GDP to hit six to 6.1 percent.

“This easing of fiscal policy should see the Philippines as one of the first Asean central banks to follow the Fed higher,” ANZ said.

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