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Business

Pivot to China seen positive for 2017 GDP

Lawrence Agcaoili - The Philippine Star
Pivot to China seen positive for 2017 GDP
President Rodrigo Duterte and Chinese President Xi Jinping greet each during a bilateral meeting at the sidelines of the Asia-Pacific Economic Cooperation (APEC) Leaders' Summit in Lima, Peru on November 19.
REY BANIQUET / Presidential Photo

MANILA, Philippines – Credit Suisse said President Duterte’s pivot to China would bring in more investments as well as tourists and is positive for the sustained economic growth of the Philippines.

In a report, Michael Wan, economist at Credit Suisse, said the country’s pivot toward China is net positive for the gross domestic product (GDP) growth as well as balance of payments (BOP) position for next year. 

Wan explained the strategy of the Duterte administration would bring in more foreign direct investments and tourism from China next year and outweigh the potential decline in flows from the US in the near term. 

Credit Suisse sees the country’s GDP expanding 6.4 percent next year. 

The report said around $1-to $4-billion or 0.3 to 1.2 percent of GDP of the $15 billion investment pledges made during Duterte’s visit to China have the potential to start in 2017. 

Likewise, Credit Suisse said it does not expect a sharp slowdown in US investments due to the pivot toward China strategy as well as the shocking victory of Republican Donald Trump.

 “This implies a two-to six-fold increase in current investments from China, and compares with the Philippines’ typical annual total FDI inflows of $6-to $8-billion. While the US is still the most important source of FDI in the Philippines, we found that US

FDI is driven by structural economic considerations rather than just solely from political noise,” Credit Suisse said. 

It said the availability of concessional financing from China would also help finance the rise in investment. 

“Real investment boost to GDP will take time to realize. Although the potential

Chinese FDI is large compared to existing FDI flows, it is still quite small relative to the overall size of the economy, which is heavily geared towards private consumption,” it added. 

Wan explained the FDI source of the Philippines has also diversified from the US with Japan becoming the largest FDI investors so far this year. 

Wan said the 45th US president would have to go to Congress to implement a plan to raise taxes on corporations that offer offshore jobs that could affect the business process outsourcing (BPO) sector in the Philippines. 

He added the planned increased infrastructure spending of the Duterte administration after it raised its budget deficit ceiling to three percent of GDP instead of two percent would support strong growth. 

“We expect expansionary fiscal policy to support growth in 2017, and forecast government spending to rise to 18.1 percent of GDP next year from an estimated 17.5 percent of GDP in 2016,” he said. 

Debt watchers Fitch Ratings and Moody’s Investors Service said the policy pronouncements of US president-elect Donald Trump raises global uncertainties affecting trading partners including the Philippines.

ECONOMIST AT CREDIT SUISSE

MICHAEL WAN

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