MANILA (REUTERS) - The Philippine economy slowed sharply in the first quarter, raising the chances the central bank may loosen policy this year to cushion economic growth as government spending stays weak.
Southeast Asia's fifth-largest economy has bucked the global trend of monetary policy easing due to solid economic growth, putting it among the fastest-growing of major Asian economies. Its improved fiscal position and governance has also led to ratings upgrades, making it a recent standout with investors.
First quarter GDP grew a seasonally adjusted 0.3 per cent in the January-March quarter against the fourth quarter's 2.5 per cent pace, the slowest quarterly growth in six years, the government's statistics agency said on Thursday.
"While growth in the private sector remains robust, the slower-than-programmed pace of public spending, particularly the decline in public construction, has slowed down the overall growth of the economy," Economic Planning Secretary Arsenio Balisacan told a news conference.
A Reuters poll of economists had forecast 1.4 per cent growth in the first quarter against the previous three months.
From a year earlier, the economy grew 5.2 per cent in January to March, below the 6.6 per cent predicted by economists and the slowest in more than three years.
Despite the lacklustre ecomomic performance, Balisacan said the government was not abandoning this year's 7-8 per cent growth goal as exports and state spending were expected to pick up.
The government also sees rice imports offsetting the impact of the El Nino dry weather phenomenon on overall farm output.
The peso weakened against the U.S. dollar immediately after the release of the data while the main stock index fell 1.3 per cent.
The growth data raised expectations for looser policy ahead. "It is very disappointing. This may trigger speculation that the Bangko Sentral ng Pilipinas (BSP) will consider easing policy rates in the June policy meeting, more so that inflation (data) for May and June are expected to be some of the lowest this year," said Emilio Neri, economist at the Bank of the Philippine Islands.
He added that growth in the second quarter was unlikely to be strong as the worst of the El Nino impact kicks in.
The BSP kept the overnight borrowing rate steady since October 2014 as it had sufficient policy flexibility given low inflation and a strong growth outlook.