PH growth to fall below 7-8% target
Duterte comments, policy changes a major concern – Capital Economics
Philippine economic growth will likely stay “decent” over the medium term but fall short of the government’s 7.0-8.0 percent target, research consultancy Capital Economics said.
In its latest “Emerging Asia Economic Outlook,” the London-based firm forecast gross domestic product (GDP) growth of 6.5 percent for 2018, down from last year’s 6.7-percent result, and a further easing to 6.0 percent in 2019 and 2020.
A trade war between China and the United States is “not the only headwind to Asian growth,” it noted with GDP growth across emerging Asia still likely to slow as weaker export demand would offset monetary policy actions.
‘Larger concern’
For the Philippines, Capital Economics said a “larger concern … is the string of inflammatory comments and policy changes by President [Rodrigo] Duterte that have raised concerns in the minds of investors over the president’s judgment and commitment to the rule of law.”
“There are signs this is having an impact,” it added, pointing to the country’s worsening global competitiveness ranking, sharp drops in foreign investment approvals and the stock market’s underperformance.
“The Philippines’ own history shows how poor leadership and political uncertainty can hold back an economy,” Capital Economics declared.
“The biggest risk for the Philippines is that history now repeats itself.”
Still, government spending under its “Build Build Build” program is expected to support GPP growth as revenues have been bolstered by the implementation of the Tax Reform for Acceleration and Inclusion law. Planned changes to corporate taxes are also expected to provide further support.
Capital Economics noted, however, that the infrastructure drive and tax reforms had led to problems such as higher inflation, a weaker peso and a deterioration in the capital account.
Q3 rate hike seen
With inflation expected to average 5.0 percent this year, substantially higher than 2017’s 2.9 percent, the consultancy expects the Bangko Sentral ng Pilipinas to implement another 25 basis point rate hike in the third quarter, bringing its overnight rate to 3.75 percent by the end of 2018.
The rise in consumer prices is expected to return to the government’s 2.0-4.0 target band in 2019, averaging 4.0 percent, and drop to 3.5 percent in 2020.
“With infrastructure spending set to increase further but export growth likely to continue to struggle, we think the current account will remain in deficit,” Capital Economics said.
“As a result, the peso is likely to come under further downward pressure over the coming year,” it added.
Weaker peso, stock market
The peso was forecast to weaken to P57 to the dollar by the end of 2018 and P59.50 the following year before recovering some ground to P58 in 2020.
The Philippine Stock Exchange index is also expected to fall and stay below 7,000, hitting 6,975 by end-2018, 6,225 in 2019 and 6,525 in 2020.
Government bond yields — at 3.2 percent and 4.1 percent, respectively, for two-year and 10-year bonds as of July 11 — were also forecast to hit 3.8 percent and 4.5 percent by the end of the year.
Further increases to 4.0 percent and 4.8 percent are expected as of end-2019 before these moderate to 3.2 percent and 4.0 percent in 2020.
FROM A REPORT BY ED VELASCo
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