Credit watchers expect over 6% Philippines GDP growth

MANILA, Philippines — International credit rating agencies are still expecting economic growth of above six percent for the Philippines this year despite lowering their forecasts due to the slower-than-expected expansion in the first quarter.

Christian de Guzman, senior credit officer at the sovereign ratings group at Moody’s Investors Service, said during the EJAP-Aboitiz Economy InFocus forum they have lowered their gross domestic product (GDP) growth forecast for the Philippines to six percent for this year.

De Guzman cited the lower-than-expected GDP expansion of only 5.6 percent in the first quarter compared with the 6.3 percent growth in the fourth quarter.

“With the 5.6 percent that we had in the first quarter, that means we’re looking at a reacceleration in growth going forward. That means also some degree of catch up in terms of budget spending. But I think we also want to caution that given the delay, it’s probably unlikely that they would be able to fully execute the budget amount,” he said.

De Guzman said the tightening cycle undertaken by the Bangko Sentral ng Pilipinas (BSP) last year also served as a drag to economic activity.

Easing inflation and the slower GDP growth in the first quarter allowed the BSP to slash interest rates by 25 basis points last May 9 and reduce the reserve requirement ratio for big and mid-sized banks by 200 basis points and for small banks by 100 basis points to free up about P210 billion in additional funds into the economy.

 “Let us not forget that the policy tightening was 175 basis points so the easing so far is 25 basis points. I don’t think it is quite precise to say that they are in an easing mode yet because conditions themselves continue to be tighter than they were this time last year,” de Guzman said.

On the other hand, S&P Global Ratings has retained its GDP growth forecast of 6.3 percent after lowering it from 6.5 percent primarily due to the delay in the passage of the 2019 national budget.

 “Despite the weaker-than-expected first quarter, we continue to expect GDP growth to come in at the low end of the six to 6.5 percent range this year. The fiscal impulse is definitely lower in the first half of 2019, but we expect infrastructure spending to ramp up again in the second half, making the overall impulse about neutral for 2019,” S&P said.

S&P said the first quarter GDP growth came in very weak at 5.6 percent, as the delay in passing the 2019 budget weighed on government consumption and investment.

It said net exports continued to pull down growth, and these two factors combined to negate the resurgence in private consumption as inflation continued to fall.According to S&P, falling inflation also allows BSP to cut further, at least once more this year, while spurring consumption growth as well.