WEAK demand for exports, lower commodity prices due to slower economic growth, and risk on country’s external debt could cut Philippine economic growth by 1.4 percentage points this year, according to the United Nations (UN).
In the Economic and Social Survey of Asia and the Pacific 2016, UN Economic and Social Commission for the Asia and the Pacific (Unescap) said this could further cut the 6 percent GDP forecast for the Philippine economy to 4.6 percent.
“Under this scenario, output growth in 11 emerging Asia-Pacific economies in 2016 could be up to 1.4 percentage points lower than the baseline case,” the Unescap report stated.
“Although lower commodity prices would help to buoy economic growth in net energy-importing economies, a decline in merchandise exports and higher borrowing costs would constrain overall growth performance under this scenario,” the report added.
The Unescap also pegged its 2017 GDP forecast for the Philippine economy to 6.2 percent on the back of strong domestic spending.
Consumption spending has been one of the country’s strongest growth drivers since it accounts for at, or nearly, 70 percent of the Philippine economy.
In a briefing during the launch of the Unescap report, Finance Undersecretary Gilbert S. Beltran said that strong domestic spending will also help prevent the Unescap’s grim forecast of a 1.4 percentage-point reduction in GDP on account of external risks.
“This is an election year and usually if you look at the other years for the past 30 years, elections boost growth by at least 0.5 percentage point to 1 percentage point,” Beltran said.
The finance official said in 2010, also a presidential election year, the economy posted a growth of 7.6 percent.
Beltran said this is the reason the government is forecasting GDP growth to reach 6.8 percent to 7.8 percent this year. While the low-end of the forecast is lower than the growth in 2010, this accounts for the expected slowdown in merchandise exports.
In February receipts from merchandise exports contracted 4.5 percent to $4.31 billion in February 2016, from $4.51 billion in February 2015.
“The silver lining is that our exports of services are still very robust, growing at double-digit rates so that will offset the negative number for merchandise exports,” Beltran said.
Meanwhile, the impact of the elections on GDP is expected to boost first quarter GDP growth to above 7 percent, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) Capital Markets Research.
FMIC and UA&P Capital Markets Research said election spending will also be supported by the double-digit growth in electricity sales in January and February, as well as manufacturing output in January.
It added that there was a strong growth in capital goods imports in January, which indicated that companies were investing in their local operations.
“We foresee an above-7 percent first-quarter GDP growth, even if agriculture were to decline by 5 percent [which is unlikely] in the first quarter. This optimistic outlook, not only hinges on the stellar performance in January, but also on our expectations for the other sectors,” the think tank said.
Meanwhile, Unescap said developing countries of Asia and the Pacific will post an annual average GDP growth of 4.8 percent in 2016 and 5 percent in 2017.
Unescap called for continued rebalancing towards domestic and regional demand, as prospects for export-led growth remain subdued. A confluence of macroeconomic risks including shifts in global financial and commodities cycles has also increased uncertainty.
The survey notes that progress in reducing poverty is slowing and inequalities are rising in much of the region. At the same time, an expanding middle class and rapid urbanization are posing complex economic, social, environmental and governance challenges.
The region also faces increased financial volatility and capital outflows, which have limited the space for monetary policy maneuvring, despite low overall inflation.
Several countries are also experiencing a private debt overhang after rapid increases in household and corporate leverage in recent years.