Moody’s Investor Service has cut its growth forecast for the Philippines following the country’s stunted first-quarter expansion and the recent failure of the government to keep spending up to pump prime the previously surging domestic economy.
Despite the lower forecast, the rating firm remained optimistic over the country’s prospects, noting that its reliance on domestic demand and service exports would keep it insulated from China’s slowing economy, which threatens to derail growth across the region.
The rating firm sees the Philippine economy growing by 6 percent this year. This was lower than the previous projection of a 6.5-percent expansion and short of the government’s own target range of 6.5 to 7.5 percent.
Last year, the Philippines grew by 7.2 percent, but in the first quarter, growth slowed to a disappointing 5.7 percent. Economic managers blamed the lingering effects of Supertyphoon “Yolanda” on the country for the first-quarter slowdown.
Among the challenges faced by the country were tensions in South China Sea as the diplomatic landmine of its territorial claims that overlap with China’s.
“Over the past year, long-smoldering tensions have rekindled over conflicting claims in the South China Sea between China and countries in the region, in particular Vietnam and the Philippines,” Moody’s said in its report.
“Nevertheless, we do not expect that geopolitics would materially affect sovereign credit profiles in the region over the coming year and even further ahead,” he said.
Moody’s rates the Philippines at its minimum investment-grade status, but has the country’s sovereign debt on “positive” watch. This means a credit-rating upgrade was possible in the coming months. The only other country on “positive” watch in the region was Malaysia.
Across the region, Moody’s said policymakers’ main concern would have to be the recent rise in interest rates from “extraordinarily low levels.”
“At the same time, trends in global liquidity conditions will be the key driver of capital flows, especially as the US Federal Reserve navigates its exit strategy,” Moody’s said.
Written by: Paolo G. Montecillo