Tighter United States monetary policy could drag down Philippine economic growth to 5.3 percent this year, a group of international accountants said.
“The Philippines could see lower growth rates, thanks to US monetary policy,” the Institute of Chartered Accountants in England and Wales (ICAEW) said in the latest issue of the Economic Insight: South East Asia.
The ICAEW warned that increased yields in the US, following the market pricing in the Fed’s tighter stance, may well mean reduced capital flows to the Philippines and the Association of Southeast Asian Nations (Asean).
According to the report, strong growth in consumption and government spending will drive the country’s gross domestic product, higher than the average for the last five years, noting further government spending on public infrastructure should then push growth even higher in 2014.
“Both companies and individuals in Philippines and the region have benefited from low interest rates, which have fueled consumption and borrowing against future income. We are likely to see this gradually change as the US economy recovers and the Fed looks for an exit strategy from its very loose monetary policy stance,” Charles Davis, ICAEW economic advisor and Center for Economics and Business Research Ltd. (Cebr) head of Macroeconomics, said.
Davis added that consumers, businesses and governments will all now have to adjust to a period where loan availability drops, and where the cost of borrowing money increases.
“However, we believe that this will pick up again in 2015 as investor capital returns to seek advantage of opportunities for growth,” he stated.
On the other hand, Mark Billington, ICAEW South East Asia regional director, said that the Philippine economy has huge scope for increases in productivity.
The report said that even though the country may experience an initial lag as workers are retrained, new capital is invested and new supply chains are developed, strong growth in consumption and government spending will drive gross domestic product up in 2013 and in 2014.
“However, beyond this, high unemployment and poverty levels as well as a need to lift interest rates in response to tighter monetary conditions in the US may drag growth rates back down to 4.6 percent in 2015,” Billington warned.
Produced by the Cebr, the ICAEW report undertakes a quarterly review of Southeast Asian economies, with a focus on the six largest countries Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.