English think-tank bucks trend, cuts Philippines’ growth outlook

MANILA – Tighter US monetary policy is likely to temper Philippines growth despite strong domestic consumption and government spending, the Institute of Chartered Accountants in England and Wales (ICAEW) said.

In a report titled “Economic Insight: South East Asia,” ICAEW said the Philippine economy would grow slower at 5.3 percent in 2013 from 6.8 percent in 2012.

“While this is down on 2012, when GDP grew by 6.8 percent, it is 0.6 percentage points higher than average annual growth over the previous five years,” the think tank said.

For next year, growth is expected to reach 5.4 percent as public infrastructure would drive growth. But higher unemployment and poverty levels and a requirement to lift interest rates will drag growth rates back down to 4.6 percent in 2015.

“Increased yields in the US, following the market pricing in the Fed’s tighter stance, may well mean reduced capital flows to Asean,” ICAEW said.

Cheap money from the Fed’s exceptionally loose monetary policies previously helped companies and governments to borrow easily. This has also led to high inflation rates, property prices and impressive – though unsustainable – gains in local stock markets.

“Both companies and individuals in Philippines and the region have benefited from low interest rates, which have fuelled consumption and borrowing against future income,” ICAEW economic adviser Charles Davis said.

“We are likely to see this gradually change as the US economy recovers and the Fed looks for an exit strategy from its very loose monetary policy stance,” he said.

The slowdown in capital inflow is acting as a serious pressure on regional markets. However a return to the Asian financial crisis conditions – where investors believe that Asean currencies will continue to depreciate more than previously anticipated – is not expected. –Maricel E. Burgonio, InterAksyon.com