MANILA, Philippines—New York-based think tank Global Source has slashed its growth projections for the Philippine economy this and next year, citing the “infinitely gloomier” global environment and little room for the government to boost infrastructure spending.
In a report entitled “Resilient, Not Immune,” dated Oct. 3 and written by Filipino economists Romeo Bernardo and Margarita Gonzales, Global Source reduced its gross domestic product growth forecast for this year to 4.3 percent from 4.8 percent. The outlook for next year was likewise reduced to 4.8 percent from 5.5 percent.
The new forecasts—which are close to the latest market consensus forecasts of 4.4 percent for this year and 4.9 percent for next year—assumed that the global financial trouble could be contained.
Aside from the world economy entering what the International Monetary Fund calls a “dangerous new phase,” the report sees it increasingly hard for the government to meet spending targets before the end of the year as it vowed to do.
“Seeing the negative impact on growth, the government has been desperately trying to catch up on spending, but we are doubtful it can make much headway having already missed the boat on infrastructure projects by failing to roll these out during the dry months,” it said.
Global Source also sees slow movement in the public-private partnership (PPP) program, further stalling the country’s much-needed infrastructure boost.
“Even the new scheme recently proposed for mass transport projects under the PPP may not yield the desired quick results. This approach, which hopes to tap cheap development loans to build the fixed component (such as rail tracks) while allowing private firms to bid for the contract for the rest of the system (including rolling stock and operations and maintenance), may be even harder and may take longer to pull off. This is because it introduces another layer of complexity in reconciling policies and procedural requirements of the government, official funders and private investors,” the think tank said.
But in the worst-case scenario where European debt troubles coupled by US weakness would lead to another global financial crisis of the same scale as 2008, Global Source said the Philippines could remain as resilient to financial volatility as it had been back then. “This is in light of robust domestic demand, continued growth in remittance and BPO [business process outsourcing] inflows, historically high foreign exchange reserves, a generally healthy bank sector and a greater fiscal space to help counter a downturn in the real economy,” it said.
Global Source said that in its best scenario, there could be a brightening in the outlook for the world economy if international efforts succeeded in preventing a financial contagion coming from the eurozone and if effective measures to stimulate the US economy were put in place.
On the upside, however, Global Source noted that inflation risk had abated, which helped support consumer demand and reduced the unspoken bias for peso appreciation.