The likelihood of a lower output growth for the Philippines this year, given the stellar growth performance in 2013, should not dull the country’s prospects of getting another credit upgrade from a major ratings agency.
Moody’s Investors Service Vice President and senior analyst Christian de Guzman told the BusinessMirror that while the Philippines’s economic growth could prove slower this year, many of the economy’s other growth drivers are intact and still positive.
“For example, we still see the Philippines as more resilient to external financial shocks versus other similarly rated countries,” de Guzman said.
In a recent presentation on Asia-Pacific sovereign outlook, Moody’s downgraded the country’s forecast growth from 6.5 percent to only 6 percent. This was below the government’s target for the year.
“The main driver of the recent lowering of our forecast has been the subdued outcome in the first quarter,” de Guzman said of local output averaging only 5.7 percent in terms of the gross domestic product (GDP).
“Also, we see some base effects at play, including more robust disbursements in the first half of last year, as well as the overhang on the supply side from Typhoon Yolanda,” he added. De Guzman also said it may be “challenging” for the country to achieve its growth target for the year given the low outturn in the first three months. The government projected growth ranging from 6.5 percent to 7.5 percent for 2014, higher than the 6 percent to 7 percent targeted in 2013.
Growth last year exceeded government expectations, averaging 7.2 percent. For the first three months of this year, however, growth decelerated to only 5.7 percent.
Despite lower growth expectations, Moody’s retained its positive outlook on the Philippines, saying the anticipated local expansion should still exceed that of similarly rated countries.
A positive outlook means an economy faces possible upgrade in the next 12 to 18 months following the last credit action.
“Growth also continues to be higher than in similarly rated countries, such as India and Indonesia in the region,” de Guzman said in an e-mailed response to the BusinessMirror.
On slower government spending possibly dragging down growth, the Moody’s official said the possibility of the national government speeding up expenditures toward the end of the year remains a possibility.
“Although relatively weak fiscal expenditure contributed to that outcome [lower growth], it may be too early to extrapolate such a result for the entire year. For example, expenditures in June were shown to have increased by 44 percent year-on-year,” de Guzman said.
“Also, the relatively poor expenditure performance through the first five months of the year contributed to a fiscal surplus. Although that surplus has since reverted to a deficit in June, the government’s fiscal position continues to be constructive for debt consolidation,” he added.
The Bureau of the Treasury earlier bared a P62.5-billion budget deficit in June, which lagged government efforts to speed up spending during the period. The deficit grew sixfold from the P8.5 billion reported in June. The June turnout resulted to an aggregate budget shortfall of P54.0 billion for the first half of 2014, 5 percent higher over comparable levels in 2013.
The country’s output performance in the second quarter is scheduled for release at the end of this month by the Philippine Statistics Authority.
Written by: Bianca Cuaresma