Philippines: Economy seen growing 6.7% this year

MANILA, Philippines — RAM Rating Services Berhad of Malaysia expects a 6.7 percent economic growth for the Philippines this year.

The economic growth forecast of the Kuala Lumpur-based debt watcher is lower than the 6.9 percent expansion registered last year but well within the 6.5 to 7.5 percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

The economy grew 6.5 percent in the second quarter, bringing the average growth in the first half to 6.4 percent.

“On the demand side, continuous investments in durable equipment and a surge in exports had sustained growth at 6.4 percent in first half. While first half year-on-year growth had moderated slightly, partly reflecting a base effect from election spending last year, the Philippines remains one of the strongest performers among emerging and developing Asian countries in terms of growth, second only to China,” RAM Rating said.

The Duterte administration has launched the Build Build Build program where it committed to spend approximately P8 trillion to increase the share of infrastructure spending to gross domestic product to 7.4 percent by 2022 from 5.3 percent this year.

“As downside risks could arise from delays in implementation or cost overruns, we expect GDP growth to be maintained at 6.7 percent in 2017, on the lower end of the government’s 6.5 percent to 7.5 percent forecast,” it said.

Besides infrastructure development, RAM Rating said the country’s domestic growth fundamentals stayed firm, sustained by remittance inflows and an uptick in the manufacturing sector.

The rating agency added the rebound in the external sector is feeding into domestic manufacturing, with rising industrial production and capacity utilization rates of manufacturing enterprises at an all-time high.

On the other hand, RAM Rating said the rebound in merchandise exports was not enough to offset the high level of consumer and capital imports.

Nonetheless, it added the services industry remained the key contributor to growth, spurred largely by trade, business process outsourcing (BPO), finance and real estate.

RAM Rating recently upgraded the credit rating outlook of the Philippines to positive from stable amid the Duterte administration’s bold infrastructure agenda and efforts for tax reform, alongside robust economic growth and strong external payments position.

A “positive” outlook means that the Philippines’ existing global scale rating of BBB3 and regional scale rating of A1 from RAM Ratings have chances of getting upgraded over the short term.

BBB3 is the minimum investment grade, while A1 is four notches away from the highest rating of Triple A.