Debt watcher Standard & Poor’s (S&P) now believes that the Philippine economy will continue along its present growth path as the incoming government has signaled it will maintain policy continuity.
In a report, S&P noted that from an economic policy standpoint, presumptive President Rodrigo Duterte’s statements since the election have so far focused on maintaining the previous administration’s infrastructure program via the public-private partnership program, as well as endeavoring to revise constitutional restrictions on foreign investment.
“With economic policy unlikely to change significantly with the incoming president, underlying demographic trends will continue to drive growth,” it said.
The credit rater forecast Philippine gross domestic product (GDP) growth at 6 percent this year.
That is higher than the revised 5.9 percent expansion in 2015 but below the 6.8 percent to 7.8 percent official GDP target range of the government.
S&P had previously warned of a higher risk of political uncertainty under a Duterte presidency, saying support for stability in the Philippines could weaken if political uncertainties increase after the presidential elections.
After the May 9 elections, Duterte turned out to be a clear winner and shortly after his wide margin proved irreversible, he told the media about his eight-point economic agenda, to which the financial markets reacted positively.
Optimism on employment, investment
Looking ahead, S&P said, “A growing and educated middle class will continue to be absorbed by a combination of overseas employment and a booming outsourcing industry, driving consumption and investment even as external demand remains weak.”
External factors, both from the real and financial sectors, are the biggest growth risks, it said.
“Persistently low oil prices, despite helping the goods trade balance, pose a tail risk of sharply reducing demand for overseas Filipino construction workers in the Middle East—a major source of remittances,” the credit ratings firm stated.
Asia Pacific outlook
In a broader view, the credit ratings firm said Asia Pacific’s near-term prospects also remain unchanged.
“The Chinese authorities seem intent on supporting growth, India’s momentum appears largely intact, and the rest of the region looks to be tracking close to our latest forecasts,” it said.
Headline inflation should start to rise with oil-price-related base effects dropping out of the data in the coming quarters, it added.
China still prime risk
In terms of risks, S&P pointed out that China continues to be the prime risk factor for Asia-Pacific, as the issue is the perceived unsustainability of credit growth needed to support its GDP growth target.
“Indeed, there have been rumors that a policy correction might be afoot. Potential US Fed rate moves are again raising the specter of volatile capital flows and choppy markets,” it added.