S&P warns against drag to growth

Despite sound economic policies, the Duterte administration’s war against drugs and related extra-judicial killings might deter foreign investment, according to debt watcher S&P Global Ratings.

“Economic and demographic fundamentals continue to drive a strong domestic demand story, as indicated by nearly 7-percent (GDP) growth in the first half of the year. The new administration’s economic policies appear sound, targeting higher infrastructure and education spending, among others,” S&P said in its Asia-Pacific Economic Snapshots report for the month of September.

“However, international investors may be getting worried about potential diplomatic complications and short-term law and order issues on the ground,” S&P said, adding that “the peso has been one of the region’s weakest performers since June.”

News on extrajudicial killings as well as President Duterte’s controversial remarks against US President Barack Obama and the United Nations, among others, had landed not only in local but also in international media outlets.

In the medium term, “underlying demographic trends will drive growth of around 6.5 percent over the next few years, despite significant headwinds from sluggish external demand,” S&P said

“The growing and increasingly educated middle class, combined with a booming outsourcing industry, continues to boost consumption and investment,” it added.

S&P nonetheless warned that “the main downside risks to the Philippine economy continue to come from external factors such as a sharper-than-expected downturn in China or repeated bouts of market turbulence.”

“Recently, tail risks from local and regional political issues have appeared as well,” according to the debt watcher.

S&P expects the Philippine economy to grow by 6.1 percent this year, within the government’s 6-7 target range.

For 2017, S&P forecasts higher economic growth of 6.3 percent, before slightly easing to 6.2 percent in 2018.