Economy likely to slow under Duterte – EIU

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President-elect Rodrigo Duterte’s popularity will result in an “uncontested” political transition for the new government, but his strongman approach to governance could cause investors jitters, unsettle lawmakers and slow progress in implementing economic policy, a British research group said in a newly released report.

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In the report “Strongman rising: What a Rodrigo Duterte presidency will mean for the Philippines” released Monday, the Economist Intelligence Unit (EIU) evaluated three scenarios for economic growth under the incoming presidency.

“We assume that Mr. Duterte will be open to foreign direct investment and will adopt measures to boost competition in the domestic economy,” the EIU report said. “Mr. Duterte has, however, made foreign investors jittery and we expect capital inflows to slow until there is further clarity on his economic team and its strategy,” the report stated.

Under this core scenario, EIU forecasts economic expansion of “at least 5 percent a year” from 2016 to 2020, well below the current government target of 6.8 percent to 7.8 percent, and other analysts’ estimates ranging from 6 percent to near 7 percent.

Nonetheless, EIU stressed that even at this slower growth rate, the Philippines would still be one of the fastest growing economies in Southeast Asia.

‘Tempestuous’

The report suggested that Duterte’s approach would lead to friction with lawmakers and big business interests, and slow progress in implementing economic policy.

“The president-elect’s antagonistic attitude towards Congress (the legislature) and his threats to shut it down should its members not cooperate with his agenda are signs that his presidency could be tempestuous,” it said.

EIU stressed, however, that Duterte inherits a fairly robust economy and he will be hard-pressed to shake its established fundamentals in the short term under the most likely scenario for his presidency, even though his tough-man approach is still likely to retard the development of the country’s institutions.

But should Duterte manage a smooth transition and not let his bellicose personality and hard-line attitudes get in the way of maintaining policy momentum, the economy will remain sturdy, the report said.

Focus on security

In an alternative, second scenario, however, the EIU calculates there is a 35 percent probability that Duterte’s single-minded pursuit of improving domestic security might lead to a neglect of other important economic and developmental reforms.

“Fears over the future are valid: bad leadership in the Philippines has led to severe misappropriation of wealth in the past, wasting the country’s opportunities. Local observers fear that a political focus on tackling crime alone will jeopardize the country’s economic prospects and undermine its hard-won status as Asia’s star performer,” it stated.

“The methods through which he has promised to restore law and order in the country are legally dubious. Human-rights groups have long campaigned against his alleged use of ‘death squads’ to eradicate crime in Davao, which they say have claimed the lives of over 1,000 people,” it noted.

A focus on security at the expense of economic policy would have a significantly negative impact, EIU said.

“We believe that under these circumstances, private investment would weaken, as some businesses become more concerned around the rule of law and political stability, and some of the Philippines’ major trading partners are deterred by concerns about human rights violations,” said.

Impeachment scenario

The third scenario, seen as the least likely with a 20 percent probability, is that Duterte is impeached following a legislative crisis within a couple of years of being elected.

“This would result in political paralysis and severe uncertainty,” it said, noting that although he has maintained a fairly clean record in his two-decade term as mayor of Davao City, it is possible the political elite would try to engineer impeachment proceedings if relations with Duterte deteriorate.

Given his divisive personality and tendency to dismiss political institutions and procedures, the risk remains, although comparatively unlikely.

The research group pointed out that should an impeachment occur, the Philippines would return to its grim tradition of political instability.

In the run-up and aftermath of impeachment, private investment would be expected to contract in subsequent quarters and remain depressed for a prolonged period, while political paralysis would be likely to constrain government spending, which would eventually stagnate over a number of quarters.

Even under this grim scenario, EIU concluded the Philippines would still avoid slipping into recession as sustained inflows of workers’ remittances would continue to underpin private consumption growth.

Over the past five years, the EIU noted that the Philippines has become one of the fastest-growing countries in South- East Asia, transforming from “the sick man of Asia” to a “rising tiger,” with GDP growth of 6.2 percent per year, on average, from 2010 to 2015.

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2 Comments

  1. This ‘report’ is contrary to the one made by DBS of Singapore, which expects a robust investment growth this year and will remain abover 10 percent, reasoning that the main intention of the Duterte’s administration is on infrastructure development. So, who cares what the British EIU has to say when out there, there are others who offers a different point of view. And, something that can buoy up the Filipinos spirit in their economic outlook.

  2. This scenario was not on the list : Duterte will stop any interviews with the media . Let his economic finance secretary run the economy. Let him concentrate in peace and order. Pnoy let Abad and Purisima run the economy. Did it work ? Sure it did with our GDP at 6 percent plus. Pnoy does not know anything as far as finance is concern not like President Arroyo who is an economic major.