Fitch Cites Risks to Philippine Growth

Political uncertainties and President Rodrigo Duterte’s unpredictable temperament could be some of the factors that may affect the economy’s growth trajectory going forward, Business Monitor International, a unit of Fitch Group, said in a report over the weekend.

“Risks to the country’s economic growth outlook are to the downside. Political infighting could cause policy gridlock, while Duterte’s unpredictable temperament could upset existing trade relations with major economic partners like the US and the EU,” BMI said, PNA reported.

“Another risk to the Philippine economy is President [Donald] Trump’s protectionist rhetoric, which could see US outward investment decline and see a shift of the BPO sector back to the US,” BMI said.

BMI, however, said the protectionist risk appeared to have subsided for now with the recent US-China trade agreement suggesting a softening of Trump’s protectionist stance and his administration shifting the focus to renegotiating the North Atlantic Free Trade Agreement.

President Duterte on Thursday said he was rejecting some €250 million ($280 million) in aid from the European Union, apparently in retaliation to recent EU criticism on his war on drugs and to send a signal to the regional bloc not to interfere in the country’s internal affairs.

Trade Secretary Ramon Lopez said that while the government was willing to let go of aid from EU, it did not want to lose privileges that Filipino exporters enjoy under the EU Generalized Scheme of Preferences+ program.

The Philippines benefitted greatly from the EU’s GSP+ scheme—being the only country in Asean in the scheme—which grants full removal of tariffs on over two-thirds of tariff lines covering a wide range of products.

BMI said the trade privilege resulted in Philippines exports to the EU surging 46% year-on-year in the first quarter of 2017, making the EU its second largest export destination and displacing the US in March 2017.

Economic growth in the first quarter 2017 slowed to a five-quarter low of 6.4%, the slowest since 6.3% in the fourth quarter of 2015, due mainly to the absence of robust spending that was evident in the run-up to the presidential elections in May 2016.

Despite the growth moderation, BMI maintained a constructive view on the country’s medium-term economic growth outlook, banking on the government’s infrastructure overhaul, and an improved business environment to drive growth going forward.

BMI expects an economic growth of 6.3% in 2017. BMI also maintained a constructive view on the medium term that growth might average 6.2% over the next five years.