ACHIEVING economic growth near the upper end of this year's target remains a challenge for the Philippines given downside risks, a Fitch Group unit said.

"The economy will find it hard to breach the upper half of the 6.0-7.0 percent growth target which the government has set," BMI Country Risk & Industry Research said in a July 3 report.

"Headwinds stemming from restrictive financial conditions alongside a weaker external sector will keep a lid on growth," it added.

BMI continues to expect the country to post growth near the lower end target and maintain its 2024 forecast at 6.2 percent.

"We think there are still reasons to be optimistic even when downside risks dominate. For now, the latest outturn is largely consistent with our full year 6.2 percent growth forecast, which we maintain for now," it said.

Gross domestic product (GDP) growth was a lower-than-expected 5.7 percent in the first quarter (Q1). Preliminary April-June data will be released next month.

Finance Secretary Ralph Recto has said that second-quarter growth would hit 6.0 percent and also expressed confidence of hitting at least the lower end of this year's target.

BMI noted that domestic demand had weakened as seen in the Q1 data and that private consumption, which makes up about 70 percent of GDP, contributed just 3.5 percentage points to headline growth in January-March, the lowest since 2011, not including the pandemic years.

It also expects investment activity to remain subdued due to high interest rates and noted that the contribution of fixed capital to growth was just 0.5 percentage point.

While Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. has indicated that rate cuts could be ordered in August, potentially boosting growth, BMI said the move was unlikely given the continuous weakening of the peso.

The central bank will more likely start cutting rates in October, it said, but the lagged impact of this means the GDP boost will only be seen next year.

Business sentiment was said to have also "notably diminished."

The external sector, meanwhile, is expected to provide less support in the coming quarters. While it contributed 2.1 percentage points to Q1 growth, BMI said that maintaining this performance would be challenging.

Several key trading partners — China, Japan, Hong Kong and Singapore — are likely to experience economic slowdowns after a strong first-quarter growth, it added.

"Risk to our growth outlook hinges largely on the recovery in private consumption," BMI said.

"In our current forecast, we have taken April's robust import growth figures to indicate early signs of a rebound in household spending. But if May and June data disappoint, this anticipated recovery in private consumption will not materialize."