S&P hikes Philippine growth forecast

MANILA, Philippines – S&P Global Ratings has revised upwards its 2016 growth forecast for the Philippines on the back of a growing middle class, a business process outsourcing (BPO) boom and expansionary fiscal policy with emphasis on public infrastructure.

In its latest economic research titled “Asia Pacific steadies while China goes silent,” the debt watcher said Southeast Asian economies are seeing stable growth, with the Philippines outperforming the region.

S&P now expects the country’s gross domestic product (GDP) to expand 6.5 percent instead of the earlier forecast of 6.1 percent for this year before slowing down to 6.3 percent in 2017 and 6.2 percent in 2018.

The country’s GDP growth accelerated to seven percent in the second quarter from 6.8 percent in the first quarter amid strong boost from election related spending. This brought the GDP expansion to 6.9 percent in the first half from 5.5 percent in the same period last year.

Economic managers penned a GDP growth target of between six and seven percent this year after easing to 5.9 percent last year from 6.1 percent in 2014 due to weak global demand and lack of government spending.

S&P’s GDP growth outlook for the Philippines is rosier than the projections for the Association of Southeast Asian Nations (ASEAN) at 4.8 percent this year, 4.9 percent in 2017, and 5.2 percent in 2018.

Likewise, the rating agency’s GDP expansion projection for the Philippines this year is faster than Indonesia’s five percent, Malaysia’s 4.3 percent, Thailand’s 3.2 percent, Singapore’s two percent, Taiwan’s 0.9 percent

S&P said Indonesia and Malaysia are benefitting from slightly improved terms of trade as commodity prices increase, while Thailand’s growth is being supported by tourism as well as stabilization of domestic sentiment following the constitutional referendum.

Robust domestic demand and the benign inflation environment have allowed the Bangko Sentral ng Pilipinas (BSP) to maintain the country’s policy stance unchanged since September 2014.

Last June 3, the BSP made an operation adjustment slashing key policy rates by 100 basis points as part of the shift to the interest rate corridor (IRC) system.

S&P sees the country’s inflation inching up to 1.6 percent before kicking up to three percent in 2017 and to 3.6 percent in 2018 from 1.4 percent last year.

The BSP has set an inflation target of between two and four percent for 2016 to 2018.

S&P rates the country’s sovereign credit at ‘BBB’ or one notch above investment grade. Last Sept. 21, the debt watcher retained the country’s credit rating and stable outlook.