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Philippines: S&P lowers growth forecast to 6.5%
INTERNATIONAL debt watchdog S&P Global Ratings has lowered its economic growth forecast for the Philippines this year to account for market developments surrounding the Russia-Ukraine conflict.
S&P cut its 7-percent growth outlook for the Philippines’ gross domestic product (GDP) by 0.5 percent, citing “a high degree of uncertainty about the extent, outcome and consequences of the military conflict between Russia and Ukraine.”
The projection is lower than the interagency Development Budget Coordination Committee’s 7- to 9-percent growth target for this year, but higher than the 5.6 percent actual GDP expansion in 2021.
Sanctions and related political risks are expected to stay in place for some time, the credit rating agency added, regardless of how long military confrontations last.
“Potential effects could include dislocated commodities markets — notably for oil and gas — supply chain disruptions, inflationary pressures, weaker growth and capital market volatility,” it said.
Significantly increased energy prices and volatility, S&P pointed out, will put pressure on several Asia-Pacific countries’ currencies and asset markets.
“This pressure will be strongest where higher energy prices pressure inflation targets — such as India, the Philippines, Korea and Thailand. Or it could cause sizable current account deficits — in India, the Philippines and Thailand,” it continued.
These risks, the debt watcher stressed, arise as the United States Federal Reserve is leading a group of major central banks in raising interest rates. Large current account deficits in emerging markets, such as India and the Philippines, are likely to lead traders to react unfavorably.
According to the most recent data, the Philippines’ current account deficit in January-September 2021 was $2.6 billion, or -0.9 percent of GDP. A current account balance is the difference between exports and imports of goods and services, as well as overseas incomes and payments, and that it is the counterpart of the investment-saving gap, which credit rating agencies regularly monitor.
“Economic growth is likely to be lower in all of these countries in 2022, with higher commodity prices undermining the recovery in private consumption. So far, the impact is modest, but could be more pronounced if prices surge further on a sustained basis,” S&P added.
Meanwhile, the credit rating agency raised its forecast for 3.3 percent average Philippine headline inflation this year by 0.9 percent. This means it now expects inflation to average 4.2 percent in 2022, much beyond the government’s 2- to 4-percent target range.
Higher consumer price index inflation would put pressure on monetary policy in India, Korea, the Philippines, Singapore and New Zealand, it warned.
Despite this, Andrew Woods, S&P Asia-Pacific director for sovereign and international public finance ratings, said the Philippines, Thailand and India have a strong external profile that is unlikely to be meaningfully unwound in the near future, even as trade circumstances worsen.
“And those external positions are going to remain supportive of the ratings,” he said in a briefing on Tuesday, “but the flow side or the current account dynamics might be weaker than expected, at least in the near term and that could put downward pressure on the currencies of these countries as well.”
Source: https://www.manilatimes.net/2022/03/16/business/top-business/sp-lowers-growth-forecast-to-65/1836417