Fitch Solutions cuts Phl outlook

Economic headwinds the country is facing both domestic and overseas compelled Fitch Solutions Macro Research to lower the Philippines’ economic growth outlook for 2018 and 2019.

In light of the country’s gross domestic product (GDP) results in the third quarter, the affiliate of Fitch Ratings Inc. believes that “... the Philippine economy will continue to struggle to reverse its waning growth momentum over the coming quarters owing to tighter monetary conditions, deepening trade tensions, as well as a declining business environment.”

The Philippine gross domestic product grew at a slower pace of 6.1 percent in the third quarter, compared with the previous quarter and the same comparable period in 2017, the Philippine Statistics Authority (PSA) reported on Thursday.

The third quarter GDP compares with the revised 6.2 percent in the second quarter of 2018 and the revised 7 percent in the third quarter of 2017.

“Accordingly, we are lowering our forecasts for real GDP (gross domestic product) growth to come in at 6.2 percent for 2018 and 6.1 percent in 2019, from 6.3 percent previously,” Fitch Solutions said.

Its forecast is below the government’s target of 6.5 to 6.9 percent for 2018, and 7 to 8 percent for 2019 until 2022.

“Risks to our growth forecasts are weighted to the downside," Fitch Solutions noted.

It cited the deepening trade tensions between China and the US weighing on global risk sentiment, and a faster-than-expected rate hiking cycle in the US that could exacerbate a possible capital flight to safety and weigh against foreign investment.

“The Philippines has rebalanced towards China under President Duterte, but the two countries continue to be at odds regarding maritime claims in the South China Sea,” Fitch Solution said.

“A flare-up of tensions between both sides would damage economic cooperation and could see China pull out of infrastructure investments in the Philippines,” it said.

Fixed capital formation is also expected to grow slower over the coming quarters as the strong publicled investment drive under the Duterte administration’s flagship “Build, Build, Build” program is unlikely to offset a slowdown in private investment growth.

“Moreover, the implementation of the second package of the Tax Reform or Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) appears to be creating uncertainty for businesses,” Fitch Solutions said.

The second tax reform package aims to slash corporate income tax rates and rationalize fiscal incentives to offset potential revenue losses.

“Even if the tax reform bill falls through (which seems unlikely after the amount of deliberation), the uncertainty would slow investment growth in the coming months,” Fitch Solutions said.