PH on track to hit 6.3% GDP despite risks – BMI

August 19, 2017 - 6:21 AM
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Building construction in Makati's central business district. (Reuters)

MANILA, Philippines — The Philippine economy faces risks as a result of the latest weakness in the financial markets but the medium-term outlook points to a strong expansion, a unit of Fitch Group said.

In a study dated August 17, BMI Research kept its 6.3 percent gross domestic product forecast for the country this 2017.

In the second quarter of the year, domestic expansion rose to 6.5 percent from the previous quarter’s 6.4 percent. Year-ago GDP, however, was higher at 7.1 percent.

In the first half of the year, GDP averaged 6.4 percent, near the lower end of the government’s 6.5-7.5 percent target.

The study explained that weakness in the financial market is seen to impact on growth in the coming months.

Infighting between the PDP-Laban and the Liberal Party is also seen to negatively impact on investors’ sentiment on the economy along with the security risks in Mindanao, among others.

However, the positive demographic profile in the country is seen to sustain improving savings rate.

“…as the working-age population rises over the coming years, this should support overall savings relative to GDP and raise the potential for investment going forward,” it said.

Productivity is also seen to sustain its uptrend after the “considerable improvements in its business environment under the former Aquino administration as seen by advancements in the Index of Economic Freedom compiled by the Heritage foundation and the Ease of Doing Business Index by the World Bank.”

BMI Research forecasts this momentum to be sustained under the Duterte administration due to the proposed tax reforms, among others.

“We believe that the current tax reform package — which is attempting to shift the tax burden from production to consumption — and ongoing plans to raise foreign ownership cap and shorten the negative investment list will further enhance the business environment,” it said.

Improvement of the business environment is seen to encourage more foreign businessmen to start domestic operations and result to further strengthening of domestic consumption.

Renewed business cooperation by the Philippine government with China and Japan are also expected to boost domestic growth, the study said.

With these positive factors, BMI Research revised upwards its 2018 growth forecast for the Philippine economy to 6.3 percent.

“Over the longer-term, we are fairly constructive on the economy, expecting growth to average 6.2 percent over the next five years, on the back of higher savings and investment, as well as increased productivity resulting from continued business environment reforms,” it added.

The government’s GDP target for 2018-22 is a range between seven and eight percent.