MANILA, Philippines—FocusEconomics has slightly lowered its 2022 growth forecast for the Philippines to 6.5% amid investor jitters over the upcoming May 9 presidential elections.
Economists on the panel of the Barcelona-based think tank this month presented an updated consensus projection below gross domestic product (GDP) growth of 6.7% previously, and remaining below the target of 7 to 9% from the government.
“GDP growth will be higher this year than in 2021, reaching the second-highest pace in Asean. Support will come from the easing of COVID-19-related restrictions, expansionary fiscal and monetary stances and the government’s ‘Build, Build, Build’ infrastructure program,” FocusEconomics said in an April 26 report.
Last year, the Philippine economy recorded better-than-expected growth of 5.7%, reversing the worst post-war contraction of 9.6% in 2020 at the start of the protracted COVID-19 pandemic.
FocusEconomics said first-quarter GDP expansion may have slowed to 7.8% year-on-year in the fourth quarter of last year, “amid a harder base effect and subdued activity. weaker underlying”.
“Private spending was likely hit by rising inflation and an Omicron-induced spike in COVID-19 cases early in the year. [first] quarter, while uncertainty related to the upcoming elections in May apparently hampered investment,” the think tank said.
Looking ahead, FocusEconomics said that “some support for growth will come from the easing of COVID-19 related restrictions in the latter part of the first quarter, which helped the manufacturing PMI. [purchasing managers’ index] increasing from February to March.
However, FocusEconomics said the Philippines would not be spared from the risks of external and fiscal imbalances, fiscal decentralization reforms, as well as the upcoming national elections next month.
“As the second quarter approaches, all eyes are on the presidential elections. Big policy changes are unlikely, but investor uncertainty and a ban on pre-election spending should affect spending regardless of who wins,” FocusEconomics said.
In a previous separate report on the Philippines presidential elections, FocusEconomics flagged the election ban on spending on new programs and projects during the campaign season, which it said will “further dampen demand.”
FocusEconomics said whoever wins between leading presidential candidate Ferdinand Marcos Jr. and Vice President Leni Robredo still needs to pursue some of the policies of the Duterte administration, including infrastructure development.
In Marcos’ case, “he is likely to largely continue the policies of current President Rodrigo Duterte, providing some clarity for the market ahead,” the think tank said.
“Marcos Jr. supports Duterte’s ongoing ‘Build, Build, Build’ infrastructure program, which has spent $23 billion this year, or about 5% of GDP. [gross domestic product] – thereby ensuring strong and continued public investment and construction activity,” he noted.
“Like Marcos Jr., [Robredo] supports the ‘Build, Build, Build’ program and downplayed the level of public debt in several media comments,” he added.
But FocusEconomics flagged the attitude of the two presidential candidates towards debt, signaling a potential downgrade in the Philippines’ credit rating.
“In a recent interview, Marcos Jr. appeared to downplay the country’s level of public debt, suggesting that overall fiscal policy will remain expansionary,” the think tank said.
“While this would stimulate economic activity, a failure to consolidate the currently high fiscal deficit would increase pressure on the external balance and the currency and threaten possible sovereign debt ratings by Fitch Ratings given the current negative outlook for the economy. agency,” he said.
The same goes for Robredo, who FocusEconomics said “would be similar to a Marcos Jr. presidency in that ongoing fiscal largesse is likely to continue, risking a debt rating downgrade.”
“However, under Robredo, funds are likely to be better targeted given the candidate’s greater political experience and detailed market-friendly policy proposals, which would bode more positively for future investment and productivity growth,” said FocusEconomics.
Despite expectations of GDP growth of 7-9% this year, the Philippines’ debt-to-GDP ratio is expected to rise slightly to 60.9% of GDP from 60.5%, its highest level in 16 years, l last year. For emerging markets like the Philippines, debt watchers considered public debt to be manageable at the level of 60% of GDP.
That’s why President Rodrigo Duterte’s economic directors will hand over to the next administration a fiscal consolidation package aimed at paying down the debt that has accumulated and reducing the record budget deficit due to higher spending but lower revenues. in the context of the prolonged COVID-19 pandemic.
The fiscal consolidation discourse can include new or higher taxes, spending cuts in non-priority sectors, as well as engines of economic growth so that GDP can grow by more than 6% per year in the medium term and exceed the public debt.
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