Political risks unlikely to derail Philippines growth

MANILA, Philippines - Nomura Securities Co. Ltd. said the controversial rhetoric of President Duterte is unlikely to derail growth prospects as the Philippines is expected to post a sustained healthy economic expansion.

In a special report titled “Philippines: Beyond words,” Nomura economist Euben Paracuelles said the country’s gross domestic product (GDP) is seen expanding 6.7 percent this year after slowing down to 5.9 percent last year from 6.1 percent in 2014.

The country’s GDP growth accelerated to seven percent in the second quarter from 6.8 percent in the first quarter amid strong boost from election related spending.

Paracuelles pointed out the country’s GDP growth is seen slowing down to 6.3 percent next year before recovering to 6.5 percent in 2018.

Unlike the rest of the region, he said the potential growth of the Philippines has risen and could rise further given favorable demographics and higher investment.

“We reiterate our out-of-consensus 2016 and 2017 GDP growth forecasts of 6.7 percent and 6.3 percent, respectively, but raise our 2018 forecast to 6.5 percent to reflect our view that the foundations for economic resilience have been established and that, despite the recent political noise from President Duterte’s rhetoric, reform progress will likely continue, which bodes well for the longer-term growth outlook,” he said.

According to Paracuelles, the country’s GDP expansion is likely to average 6.7 percent under the Duterte administration, higher than the 6.2 percent average growth booked between 2010 and 2016 under the watch of former president Benigno Aquino III.

“We expect the Duterte administration to make more progress than its predecessor on infrastructure spending,” he said.

The economist said the past reforms allowed the present administration to hit the ground running and expedite project approvals and plugging the infrastructure deficit aligns well with the overarching goal of inclusive growth.

Furthermore, he added the cost of congestion in economic centers, if left unchecked, is set to rise rapidly.

He explained there are early signs of strong adherence to the 10-point economic agenda, which stresses policy continuity and more reforms.

Paraceulles said the biggest risk to an otherwise positive growth outlook is political in nature and stems mainly from President Duterte’s war against illegal drugs.

“This is hogging the headlines and has generated negative spillover effects via his seemingly adverse foreign policy pronouncements. In our view, concerns over the war on drugs will likely continue to weigh on investor sentiment in coming months, but we caution against jumping to any conclusion that the new government’s foreign policy will become isolationist,” he said.