Philippines: Debt watchers raise Phl growth outlook
MANILA, Philippines – Debt watchers Fitch Ratings and S&P Global Ratings raised the Philippines’ gross domestic product growth forecast over the next two years after a stronger-than-expected performance last year.
Fitch expects the economy to sustain its strong growth momentum, raising the GDP growth forecast to 6.8 percent and 6.7 percent in 2017 and 2018, respectively.
The figures were higher than the 6.2 percent growth earlier penciled by Fitch for this year and within the GDP growth target of between 6.5 and 7.5 percent penned by government economic managers for this year.
Fitch said the country’s strong economic growth is a rating strength after the GDP expanded faster at 6.8 percent last year from 5.9 percent in 2015 amid the strong growth in private consumption spending and investment.
This brought the Philippines’ average real GDP growth for the five years to end-2016 at 6.6 percent, well above the ‘BBB’ median of 3.2 percent.
Private consumption, it said, was supported by the five percent growth in cash remittances from overseas Filipinos that accounted for about 10 percent of the country’s domestic output.
It added growth in investment spending was driven by a pick-up in infrastructure investment.
Fitch retained the country’s sovereign credit rating at ‘BBB-‘ equivalent to minimum investment grade on a positive outlook.
“The Philippines’ ratings reflect its continued strong and consistent growth performance, a robust net external creditor position and government debt levels that are lower than the median of peers in the BBB rating category,” Fitch said.
The growth was achieved amid the benign inflation environment as consumer prices rose 1.8 percent last year, below the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).
The rating agency sees inflation picking up to 3.3 percent this year, slightly above the midpoint of the two to four percent target set by monetary authorities.
Fitch noted the country’s macroeconomic fundamentals remained strong under the Duterte administration despite the controversies around the all out war against illegal drugs.
“Macroeconomic performance has remained strong despite the increase in incidents of violence associated with the administration’s campaign against the illegal drug trade while domestic political stability has been maintained,” Fitch said.
The debt watcher said it would continue to monitor the impact of President Duterte’s campaign against drugs on economic performance, financing flexibility and capital flows.
For its part, S&P also raised the GDP growth outlook to 6.6 percent instead of 6.4 percent for this year and to 6.4 percent instead of 6.2 percent for next year.
In a report titled “Asia-Pacific credit conditions Q2 2017: Top risk is uncertain US trade tax policy,” said the baseline macroeconomic front for the region has improved somewhat.
However, S&P said risks have widened and become skewed to the downside.
These risks include adverse US trade policies, China debt overhang, higher interest cost and volatile foreign exchange, property market adjustment, and corporate refinancing challenge.
S&P sees inflation in the Philippines rising to 3.1 percent this year and to 3.5 percent for 2018.
S&P rates the country’s debt at ‘BBB’ or a notch above minimum investment grade while Moody’s Investor Service also rates the Philippines at ‘Baa2” also a notch above minimum investment grade.