The government should strive to sustain the pace of spending to ensure that the momentum of economic expansion will continue while keeping inflation at a downtrend, according to analysts.
In a commentary, Manulife Investment Management and Trust Corp., a subsidiary of Canadian insurance giant Manulife, said the Philippine economy has the potential to keep its relatively good performance over the coming quarters.
The country's gross domestic product (GDP) in the third quarter grew by a surprising 5.9 percent, way above market expectation of a 4.9 percent increase.
The growth was driven mainly by the recovery in government spending at 6.7 percent as against a contraction of 7.1 percent in the second quarter.
'As long as government spending holds at these levels, there is a potential that we could see sustained economic growth going into the following quarters,' Manulife head of equities Mark Canizares said.
This also came after the economic team called on state agencies to come up with spending catch-up plans.
Manulife head of fixed income Jean de Castro, for her part, argued that while there has been a rebound in construction activities, overall private investment fell in the third quarter.
She warned that the still elevated inflation and high interest rate environment would remain as the challenges to economic growth.
'Despite a rebound in the third quarter, growth in household consumption has been steadily declining every quarter since last year as high inflation erodes households' purchasing power,' De Castro said.
'High interest rates also discouraged the private sector from borrowing, dampening private investment. As we don't expect the macroeconomic backdrop to change drastically, there remain downside risks to growth in the next few quarters,' she said.
Further, De Castro maintained that developments in inflation are crucial as these would dictate the direction of interest rates.
Inflation in September dropped to 4.9 percent from 6.1 percent in September. Year-to-date inflation at 6.4 percent, however, remains above the five to six percent target for the year.
De Castro said the Bangko Sentral ng Pilipinas would continue to be focused on containing inflation, evident in its decision to take an off-cycle action by hiking rates.
'While upside risks to inflation remain, our base case outlook is for the BSP to keep policy rates steady for the remainder of 2023,' she said.
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