The fundamentals are solid to sustain the Philippines’ economic growth in the near term, but politics—specifically a combination of the Duterte and Trump presidencies—could sour prospects in the next four to six years, according to London-based economic research consultancy firm Capital Economics.
While the economy “remains in good health” following the robust 7.1-percent gross domestic product (GDP) growth in the third quarter, Capital Economics senior Asia economist Gareth Leather said “recent political events, both in the US and domestically, have made the outlook much less certain.”
Decent pace
“In the short term at least, we expect the economy will continue growing at a decent pace. With inflation subdued, the central bank looks set to keep interest rates low, which should support investment. Prospects for consumption, which is being supported by a combination of rapid wage growth, healthy household finances and buoyant sentiment, are also good. A strong fiscal position means there is scope for the government to boost spending. Meanwhile, low debt levels and a current account surplus mean the country is well-positioned to weather any negative shift in investor sentiment,” Leather said in a Nov. 17 report titled “Philippines: Politics the main risk to the growth outlook.”
Forecast
As such, Capital Economics kept its GDP growth forecast for the Philippines of 7 percent for 2016 and 6.5 percent for 2017, although Leather said “the risks are now firmly to the downside.” The government targets 6-7 growth this year and 6.5-7.5 percent 2017.
For Leather, the medium-term economic outlook “has become much less certain following the election of Donald Trump as the next US president.”
Outsourcing sector
“While it remains to be seen if Trump will follow through on some of his more protectionist policies, if he did, the repercussions for the Philippines would be significant. Remittances to the Philippines from the US are equivalent to 3 percent of the country’s GDP, while exports to the US are equivalent to a further 4 percent. The Philippines’ booming business outsourcing sector, which has benefited hugely from US investment, would also be hit hard by any attempt to bring back jobs to the US,” Leather explained.
On the domestic front, Leather said President Duterte “is continuing to unnerve investors with a series of controversial comments and erratic foreign policy changes.”
“With Duterte in charge, it is hard to rule out a sudden shift in economic policy or a disruption of the political stability that has characterized the last six years. Either would cause sentiment to sour and growth prospects to weaken,” according to Leather.