Global financial services company Credit Suisse cut its growth forecast for the Philippines this year to 6 percent from the previous estimate of 6.4 percent amid a weak labor market.
“Having stood on the positive side of consensus for some time, we have now cut our 2017 GDP forecast down to 6 percent from 6.4 percent previously. This compares with the current consensus expectation of 6.4 percent, which we note has been rising steadily since the end of last year,” the Zurich-based bank said.
“Driving our forecast is our expectation that private consumption will moderate further due to an unusually weak labor market,” it said.
Credit Suisse said employment growth declined sharply over the past two quarters, sharper than typically implied by a post-election slowdown. In addition, a significant number of workers dropped out of the labor force since the start of the year, with the labor force participation rate declining by more than 2 percentage points as a result.
Credit Suisse cited three potential reasons for the declining number of labor force. These are the uncertainty in the lead-up to “endo,” or temporary contract worker regulations; weak government spending year-to-date; and K-to-12 education reform partly contributing to decline in labor force participation rates.
“Our model suggests that employment growth transmits to consumption growth with a three-quarter lag. As such, the negative impact of a weaker labor market will likely be felt keenly over the rest of this year,” it said.
Credit Suisse also lowered its 2017 private consumption forecast to 5.7 percent from 6.5 percent previously. It said the forecast implied a moderation from 7 percent seen last year and below the latest consensus forecast of 6.1 percent.
“We do not expect other items in GDP to offset weaker private consumption: First, implementation of big-ticket public infrastructure projects is likely to remain disappointing… Second, while private fixed investment has been strong, it is unlikely to accelerate further given robust growth rates already seen so far this year,” it said.
It also said exports were likely to moderate in the second half compared to the first half. It said with GDP likely slowing further from here and private consumption looking less robust, Bangko Sentral ng Pilipinas might keep rates on hold this year.
S&P Global Ratings said earlier it was expecting the Philippine economy to grow at an average of 6.5 percent in the next two years despite threats from both domestic and external fronts.
The major global credit ratings agency said strong domestic demand would remain a main driver of expansion this year and next.
“The economic growth story continues to appear solid for now, while inflation is trending comfortably within the target band for now,” the credit rating agency said.
“Strong domestic demand will continue to drive a solid GDP expansion at around 6.5 percent annually over the next two years,” it said. S&P expects the Philippine economy to grow by 6.6 percent this year and 6.4 percent in 2018.