S&P sees slower GDP growth of 5.5% this year

MANILA, Philippines - New York-based credit rater Standard and Poor’s (S&P) sees the economic growth of the Philippines slowing down to 5.5 percent this year due to the absence of additional stimulus measures after the country posted its fastest expansion in 34 years last year.

In a report, S&P analyst Agost Benard said the absence of stimulus measures as well as election-related spending would lead to a slower economic growth this year.

“With these additional stimulus measures absent this year, and the base effect working in the opposite direction, we expect growth to be lower at about 5.5 percent,” Benard said in a report.

The Philippines posted a stronger-than-expected gross domestic product (GDP) growth of 7.3 percent last year surpassing the revised target of five percent to six percent set by the Cabinet-level Development Budget Coordination Committee (DBCC). The country was on the verge of a recession after its GDP growth slackened to 1.1 percent in 2009 from 3.8 percent in 2008 due to the full impact of the global financial crisis.

“As customary, remittance-fuelled private consumption growth was a key driver, but investment and net exports made notable contributions. This stellar performance benefited from a base effect, given 2009 growth of 1.1 percent, election-related spending during the first half of 2010, as well as some measure of fiscal stimulus on account of the earlier downturn,” he added.

The DBCC sees the country’s GDP posting a GDP growth of between seven percent and eight percent.

Despite the expected slowdown this year, he pointed out that the average GDP trend growth of 4.5 percent over the past decade would continue to improve.

“Nevertheless, with the expansion of the services and construction sectors, the trend growth rate for the Philippines is likely in the process of rising from the 4.5 percent average seen over the past decade,” Benard said.

According to him, the Aquino administration’s public private partnership (PPP) scheme would help boost private sector economic activity.

However, S&P said the faster economic growth last year failed to boost revenue collections as it improved only by 7.5 percent while nominal GDP surged by 11 percent.

The credit rater also cited the ability of fiscal authorities to curtail expenditures in the second half of last year resulting in a single-digit growth of 7.1 percent in government spending.

The country’s budget deficit swelled to a record level of P314.5 billion or 3.7 percent of GDP last year from P298.5 billion or 3.9 percent of GDP in 2009. The shortfall was better than the programmed deficit of P325 billion or 3.9 percent of GDP. This year, authorities hope to trim the deficit to P290 billion or 3.2 percent of GDP.

“This will add credibility to the new administration’s commitment to a gradual fiscal consolidation,” Benard said as the Aquino administratio vowed to trim the deficit to two percent starting 2013 until 2016.

S&P sees the Philippines trimming the budget deficit to 2.1 percent of GDP as early as this year.