Credit Suisse revised its gross domestic product (GDP) growth forecast for the Philippines this year to 6 percent from 6.4 percent on expectations of a slowdown in private consumption and a weak labor market.
“We now expect the Philippines’ GDP to surprise on the downside in 2017, which contrasts with our previous positive view on growth. We cut our 2017 GDP forecast to 6 percent, down from 6.4 percent,” it said in a report on Thursday.
“Driving our forecast is our expectation that private consumption will moderate further in large part due to an unusually weak labor market,” it added.
The revised forecast for the whole year is lower than the 6.9 percent GDP growth in 2016. The government has set a growth target of 6.5 percent to 7.5 percent for 2017.
Weak labor market
The bank said employment growth has declined sharply over the past two quarters, sharper than typically implied by a post-election slowdown.
A significant number of workers has dropped out of the labor force since the start of the year, with the labor force participation rate in April declining by more than 2 percentage points to 61 percent from 63 percent a year earlier, it said.
“There are three potential reasons: 1) Uncertainty in the lead-up to “endo,” or temporary contract worker regulations; 2) Weak government spending; and 3) K-to-12 education reform partly contributing to a decline in labor force participation rates,” it noted.
The uncertainty surrounding “endo” or end-of-contract practices since last year could have impacted employers’ hiring decisions in the run-up to 2017.
“Endo” refers to the use of temporary employment contracts, usually five months, to avoid the mandated six-month term within which a company must upgrade the contract to regular employment.
Discussions to prohibit endo have been ongoing since the second half of last year, culminating in Department of Labor and Employment Order 174 in March.
“The bad news, however, is that companies, perhaps in particular small and medium size companies, could have cut back employment more sharply than anticipated in the run-up to these regulations this year,” Credit Suisse noted.
Government spending has slowed significantly to 1.9 percent in the first quarter of 2017 from 15 percent in the fourth quarter of 2016, the bank noted.
“Nonetheless, this is likely an incomplete explanation as the employment slowdown has been broad-based across the vast majority of sectors, with overall services employment also moderating significantly this year,” it said.
The decline in the labor force participation rate could be attributed to the K-to-12 education reform, as more young workers stayed in school.
The longer term for basic education under a 13-year program from 10 years has been rolled out gradually since 2011.
“Nonetheless, we doubt this is the main