Gov’t spending key to boosting economic growth

GOVERNMENT spending will either stunt or spur growth this year, with all eyes on the state’s ability to improve on its spotty record in providing fiscal stimulus to economic activity.

British bank Standard Chartered said in a new report that the acceleration needed for the country’s growth rate to be in range of official targets would depend largely on the government.

Last year, gross domestic product (GDP) grew by 6.1 percent, or slower than 2013’s 7.2 percent, due partly to a slowdown in the middle of the year caused by lackluster state spending. A recovery was seen in the fourth quarter as disbursements rose by nearly a tenth.

For 2015, Standard Chartered says it saw the Philippine economy growing by at least 6 percent, which still falls short of the government target of 7 to 8 percent. Despite this, “the outlook remains bright,” according to Standard Chartered.

“We see upside risks to this forecast, particularly if government expenditure accelerates and more infrastructure projects move into the construction phase,” the bank said in a note to clients this week.

“Growth is likely to be supported by the domestic and external sectors, with low oil prices providing additional upside,” the bank said, adding that the economy has continued to benefit from solid external demand in recent months.

Apart from higher state disbursements, the recovery seen in the fourth quarter of 2014 was also observed in other sectors. Agriculture, for instance, added half of a percentage point to growth, reversing a 0.3 percentage-point drag in the third quarter. Manufacturing added 1.8 percentage points, while construction added 1.1 points. Services added 3.3 points, driven by wholesale and retail trade and business services.

Manufacturing and construction are likely to sustain the strong growth seen in Q4 (7.3 percent year-on-year and 20.5 percent year-on-year, respectively) in 2015. We expect more positive and stable growth from services sectors, the bank added.

In a statement yesterday, the Department of Budget and Management (DBM) said the government would raise infrastructure spending to a record P451 billion or the equivalent of 4 percent of GDP.

Officials late last month likewise said higher consumer spending and cheaper fuel ahead of the 2016 presidential elections would also provide a boost to economic activity.