MANILA, Philippines - New York-based think tank Global Source Partners slashed the country’s economic growth projections amid increasing foreign investor caution, more volatile global financial markets, and risks of a stronger El Niño weather disturbance.
In its quarterly report on the Philippines, Global Source revised downwards its 2015 gross domestic product (GDP) growth forecast for the Philippines to 6.1 percent instead of the previous projection of 6.7 percent made in May.
“External risks have increased since our last report. Our outlook, which sees GDP growth at 6.1 percent in 2015 and 6.5 percent in 2016, is one of guarded optimism,” the think tank said.
Global Source pointed out weak export markets have dampened sales across several product lines.
It also cited the impact of the Greek debt debacle as well as the stock market crash in China in lowering the country’s GDP growth outlook.
“As well, continuing anxieties over Greece and its repercussions on the euro plus fears of herding out of Asian/emerging markets equities have increased volatilities in financial markets with players watchful of potentially disruptive capital outflows as the US normalizes monetary policy, expected later in the year,” it added.
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On the other hand, it explained “guardedness stems not only from exports’ vulnerability to softening external demand but also from what we think is increasing investor caution, especially on the part of foreign businesses, as seen in lower investment pledges and translations into actual foreign direct investments (FDIs).
The baseline case considers measures to help cushion the impact on farm output of an El Niño-induced drought, the policy stance of the Bangko Sentral ng Pilipinas (BSP), and that the markets have already priced in the impending interest rate hike by the US Fed.
“We expect any capital outflows associated with such gradual adjustments to be manageable in light of the BSP’s more than ample foreign exchange reserves to cover importing and debt servicing requirements,” it said.
For the second quarter, the company sees the country’s GDP falling below six percent due to uncertainty about government spending, wider trade deficit, and declining investment pledges.
Global Source said its worst-case scenario involves a repeat of the first quarter performance reflecting lethargic government spending and the drag from net exports accompanied by large crop losses from a severe El Niño.
Risks also include the erosion of consumer and investor confidence due to disruptive financial price adjustments as well as more and more investors sidelined by a hazy 2016 political outlook where no clear frontrunner emerges among multiple contenders.
“Weather forecasters are warning of a possible severe El Niño episode by 4Q15, raising the specter of ravaged crops and price spikes. Mixed into this unpleasant brew is politics, where the immediate issue is a possible multi-contender presidential race in 2016 with no clear frontrunner, specifically one who can assure bureaucrats of continuity in the executive branch, key in our view to unlocking promised state spending,” the think tank said.
Under its best-case scenario, the think tank expects President Aquino to inspire greater confidence by rallying supporters behind presidential candidate Mar Roxas on the promise of reform continuity, ensuring the credibility of the vote and the count, and laying the foundation for next stage reforms that would allow the next president to hit the ground running.
“The tactic is a clever one intended to translate popular support for the President, who has managed to spring back from low ratings in the wake of the Mindanao crisis early this year, into votes for Mr. Roxas, who is lagging in presidential preference polls. If it succeeded in painting the other contender, vice president Jejomar Binay, who is hounded by allegations of corruption, as one taking the “crooked” path, so much better,” Global Source said.
The think tank sees inflation averaging 1.6 percent instead of 2.2 percent this year, which is below the BSP target of two to four percent. It sees the BSP keeping interest rates steady this year with the overnight borrowing rate at four percent and the overnight lending rate at six percent.
Global Source is also looking at a weaker peso at P46.1 to $1 instead of P44.65 to $1 this year.
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