News Analysis: Economy still on upswing despite inflation rise

MANILA, Philippines (Xinhua) - The economy will continue to grow faster toward the end of the year despite a slight rise in inflation in September and the continued threats to the global economy, particularly that of the United States, the country's leading trading partner.

In the latest Asian Development Outlook (ADO) report, which was released earlier this week, the Philippines was the only country in the Asia-Pacific region whose economic growth was revised upwards by the Asian Development Bank (ADB).

The ADB now forecasts the Philippines to grow by 7 percent this year from its previous forecast of 6 percent.

Philippine economic managers said that the growth forecast will remain despite the rise of the country's annual inflation rate to 2.7 percent in September, faster than the four-year low of 2.1 percent in August.

The latest figure, however, was still below the official target for 2013 of 3 to 5 percent. It was also slower than the 3.7 percent posted in September last year.The average inflation rate for the first 10 months of the year stood at 2.8 percent.

Economic Planning Secretary Arsenio Balisacan, director general of the National Economic and Development Authority (NEDA), said that price pressures from the external front, including volatile prices of oil in the world market, had a very manageable impact on domestic inflation.

He said any uptick in prices was unlikely to cause a breaching of the inflation target given that the year-to-date figure remained below the low end of the target.Balisacan added that any mild depreciation of the peso would not cause inflation to go beyond target.

But Governor Amando M. Tetangco of the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said that while low inflation in September affirmed the correctness of current monetary policy settings, adjustments might have to be made amid uncertain conditions abroad.

"(The September rate) reaffirms our assessment that inflation would remain manageable over the policy horizon and that barring any unforeseen developments policy settings continue to be appropriate," Tetangco said.

The Philippines' annual inflation rate was below that of Indonesia which registered 8.40 percent in September but higher than that of Thailand which had a 1.42 percent inflation rate for the same month.

So far the best indication that the Philippines is Asia's fastest growing economy was it obtained on Thursday from Moody's Investor Service its third investment grade rating for the year.

Moody's was the last major credit rating firm to upgrade the Philippines to investment grade. Fitch Ratings was the first to recognize the Philippines' improved economic standing in March, followed by Standard & Poor's in May.

Tokyo-based Japan Credit Rating Agency (JCR) also upgraded the Philippines to investment grade last May.

The Philippines is now rated "Baa3" by Moody's-a notch higher than the previous "Ba1," which was considered "speculative".

Finance Secretary Cesar Purisima said that the upgrade, which he thought was long overdue, was due to sound economic policies and the public sector's push toward good governance. "Good governance is truly good economics," Purisima said in a statement.

He said the higher credit rating should give the government more access to cheaper credit because investors may now consider the country's debt to be less risky.

In a statement, Tetangco said Moody's upgrade should spur investments, which would lead to the creation of more jobs.

"Greater investments should strengthen the base for sustained and inclusive economic growth and usher in a transformative period for the Philippine economy," Tetangco said.

Budget Secretary Florencio Abad said that the upgrade by Moody' s completes the investment grades that the Philippines had aspired for. "We can expect improvements in terms of foreign investments and tourism," he said.

Moody's has also revised its outlook for the Philippines' government debt rating to positive, indicating the possibility of another upgrade in the next 12 to 18 months.

"The Philippines' economic performance has entered a structural shift to higher growth, accompanied by low inflation," it said.

Moody's cited the country's gross domestic product growth in 2012, which clocked in at 6.8 percent. The country's growth accelerated to 7.6 percent in the first half of the year, outpacing the rest of the Asia-Pacific region.

The International Monetary Fund also expects the economy to grow by 6.75 percent this year.

Fitch Ratings has announced that it too had revised its growth outlook for the Philippines this year to 6.2 percent from the previous 5.5 percent.

"These levels are among the fastest rates of growth in Asia- Pacific and across emerging markets globally. At the same time, inflation remains well-anchored and is currently below the central bank's target range," it said.