Legitimate political risks to PH growth should not be dismissed
FOR the second time in barely two weeks, Capital Economics has sounded alarm bells about risks to the Philippine economy under the stewardship of President Rodrigo Duterte, whom the London-based research and
In its latest “Emerging Asia Economic Outlook” report, Capital Economics pegged the Philippines’ GDP growth at 6.5 percent for this year and 6.0 percent for 2019 and 2020, estimates that are lower than most other analysts’ forecasts and well below the government’s target of 7.0 percent to 8.0 percent growth.
The report noted that the effects of the expanding trade war between the US and China and otherwise weak export growth across the region — Philippine exports contracted by 3.8 percent in May, according to trade data released just this week — would put pressure on the economy and make the depreciation of the peso. But Capital Economics passed those points rather quickly to focus on what seems to be a
A “larger concern,” its report explained, “is the string of inflammatory comments and policy changes by President [ Rodrigo] Duterte that have raised concerns in the minds of investors over the president’s judgment and commitment to the rule of law.” Some “signs this is having an impact,” the report continued, are the Philippines’ decline in its global competitiveness ranking, the local stock market’s slide into bear territory, and a significant drop in foreign investment approvals.
In a similar assessment released during the last week of June, Capital Economics was even less complimentary towards President Duterte, charging that his “erratic and crass indicators, and under whom “improvements to the business environment appear to have ground to a halt.”
correlation with cause to offer a political opinion disguised as economic analysis. Despite the impressions some may have, there is no real evidence that the President’s admittedly mercurial personality is having a direct impact on the economy; most instances in which he might be fairly described as having acted “erratically” or been “crass” in his attitude have involved social and political rather than economic issues.
By the same token, Capital Economics’ focus on political risks to the economy is not completely without validity. While we might reasonably dismiss the particular conclusions reached by the consultancy, we cannot dismiss the impact of politics on the economy generally. This will become especially important in the coming months as the country moves, as it now seems likely it will do, towards a transition into a federal system. Changes in the administrative and regulatory structures of different levels of government, and changes in the distribution and sources of government revenues at both the national and the new regional levels will have profound effects on the economy, and it is quite simply to the uncertainty and unavoidable temporary disorder of the transition period. Even if they look on the transition to federalism as a positive development, many investors are going to be inclined to wait until the dust settles before proceeding with any plans, and that could result in slower economic growth for a period of time.
When that happens, the objective of having the economy emerge from an uncertain transition period into a new normal in the shortest possible time will be best served when analysts, the government, and we in the media observe and interpret economic conditions with objectivity and reason. In that sense, Capital Economics’ latest report is valuable, because it is a good example of how not to do it.