BASEL: Switzerland-based Financial giant UBS forecasted slower growth for the Philippines and a weaker peso for the next two years as domestic demand slows while the global economy remains turbulent.
In its 2017 economic outlook, UBS forecasted real GDP growth of 5.6% and 6.0% in 2017 and 2018 respectively.
The investment bank noted that strong domestic demand and booming investment growth delivered better than expected real GDP growth this year but that the conditions that led to it are changing.
“The drivers of this boom were likely election related spending (including a large fiscal impulse) and loose monetary conditions that fuelled credit growth. We expect both of these to reverse in 2017 as deficit projections show a smaller fiscal impulse, and global monetary conditions tighten,” the report read.
UBS sees the lack of room in the fiscal deficit as one of the main reasons behind this. It noted that ahead of the May elections, the fiscal deficit widened sharply – from just 0.9% of GDP in 2015 to 2.7% of GDP (seasonally adjusted) in Q2 2016.
“This provided a sizeable fiscal impulse (defined as the year-on-year change in the fiscal deficit) to spur growth. The government forecasts fiscal deficits of 3.0% of GDP in both 2017 and 2018 – as such there is little fiscal impulse coming through in 2017 (and none in 2018),” the report outlined.
The bank said, however, that the government’s push for big ticket infrastructure could allow fiscal policy to be more supportive of growth than the deficit implies, provided the projects remain on schedule.
“We doubt that this boost will come as early as 2017, infrastructure projects tend to be plagued by delays, but better traction on public projects could lift growth in 2018. There remains a risk that spending will front-run revenue raising – resulting in a higher deficit (and fiscal impulse) than forecast over the next two years,” UBS said.
