Politics remains major risk to Philippine growth – think tank

MANILA, Philippines – UK-based think tank Capital Economics said politics remain a major risk to the robust economic expansion of the Philippines.

Gareth Leather, senior Asian economist at Capital Economics, said the Philippine economy remains in good health with gross domestic product (GDP) growth accelerating to 7.1 percent in the third quarter, making the country the fastest growing economy in the region.

The GDP expansion in the third quarter was faster than the seven percent growth registered in the second quarter of the year and brought to 71 the number of quarters wherein the Philippines has been posting positive GDP growth.

“Looking ahead, the foundations are in place for growth to remain strong, but recent political events, both in the US and domestically, have made the outlook much less certain,” Leather said.

Capital Economics is keeping its GDP growth forecast at seven percent for this year and 6.5 percent in 2017.

“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,” he said.

According to Leather, prospects for consumption, which is being supported by a combination of rapid wage growth, healthy household finances and buoyant sentiment, are also good.

He explained a strong fiscal position means there is scope for the government to boost spending.

Meanwhile, he said low debt levels and a current account surplus mean the country is well-positioned to weather any negative shift in investor sentiment.

Leather said the medium-term outlook for the Philippines has become much less certain following the election of Donald Trump as the next US president.

“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,” Leather said.

Cash remittances to the Philippines from the US are equivalent to three percent of the country’s GDP while exports to the US are equivalent to four percent.

Likewise, he said the country’s booming business outsourcing (BPO) sector would also be hit hard by any attempt to bring back jobs to the US.

The economist added President Rodrigo Duterte continued 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,” Leather said.

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