For the country’s economic managers, a growth of 6.6 percent in the second half of the year is still achievable.
“As the Asean region experiences poor trade performance, the Philippines remains to be one of the bright spots in Asia,” the Cabinet-level, interagency Development Budget Coordination Committee (DBCC) said in its mid-year report dated Sept. 30.
It said the first half economic growth of 5.3 percent means the country needs to hit at least an 8.6-percent average real growth in the second half to be able to achieve a full-year target of 7 percent.
However, “a 6-percent full-year, real [gross domestic product] growth in 2015 requires an expansion by at least 6.6 percent in the second semester. Such a scenario is feasible given the buoyant performance of the domestic demand,” it said.
The latter will be more in line with the government’s expectations of a “realistic” economic expansion of only 6 to 6.5 percent this year.
Amid external volatility from weaker economies and markets overseas, “the source of the country’s economic growth for the second half is likely to remain domestic in origin,” the DBCC said.
“The private sector’s positive outlook, the fiscal space of the government, the growth-supporting monetary policy stance, and the interventions of the government in terms of its various programs and projects directed towards improved social services will continue to maintain the country’s favorable growth trajectory,” it explained.
While the domestic economy would continue to expand, the DBCC sees the biggest risk may come from the prolonged dry spell, or the El Niño phenomenon, especially on food production.
“On the supply side, agriculture and fishery will likely take the brunt of El Niño as a number of provinces are either afflicted by drought, dry spell, or below normal rainfall conditions,” the DBCC noted, citing the Philippine Atmospheric, Geophysical and Astronomical Services Administration report that the dry season will “intensify and last until early 2016.”
“Crops—in particular, palay and corn—are likely to be the most affected, with projected contraction in their production in the second semester by 0.5 percent and 1.6 percent, respectively. Poultry and livestock will likely experience distress and could be aggravated by the possible spike in the price of feeds,” the DBCC said.
“Fishery could also be adversely affected given that the increase in temperature could push more schools of fish in the pelagic zone. Moreover, an increase in the temperature may jeopardize aquaculture such as seaweed, milkfish and tilapia farms,” the DBCC added.
The DBCC also warned of the dry spell’s impact on power generation.
It noted that the “relatively thin power reserves present vulnerability to the potential impact of El Niño on hydropower.”
The DBCC also noted of other downside risks that could affect growth prospects.
The DBCC admitted “delays in the implementation of infrastructure and reconstruction projects can affect investor sentiment and result in the slowdown of potential investment stream.”
“While congestion in the ports has ceased, the continued efforts to effect a longer-term solution is important to avoid its recurrence,” it added.
The DBCC also stressed on the need to address disruptions in the Mindanao peace process.
As for external trade, the DBCC pointed out the Philippines remains vulnerable to the fragile economies of China, Japan and the EU, as these trading partners account for 44.4 percent of the country’s exports.
The DBCC also said geopolitical tensions, including the conflicts in the Middle East and the country’s dispute with China over the West Philippine Sea may also cause economic disruptions.