ADB cuts, S&P ups Phl growth forecasts

MANILA, Philippines - The Asian Development Bank (ADB) and Standard & Poor’s have made contrasting forecasts on the Philippines’ growth prospects for this year. While S&P expects the country’s rapid pace of development to continue, ADB has trimmed its forecasts for this year and the next.

In a report, S&P said the economy is projected to grow by 6.7 percent this year, higher than its previous projection of a 6.6 percent growth.

At the same time, the debt watcher raised its projections for Philippine economic growth to 6.2 percent for 2015 and to 6.4 percent for 2016. Both are higher than S&P’s March projections of six percent for next year and 6.1 percent for 2016.

But S&P cautioned “We continue to see the balance of risks to our Asia-Pacific baseline scenario as being on the downside.”

 “The main downside risk remains the possible financial turbulence and investment fallout from the repricing of credit in China, with a growing role for the property sector in that story. Moreover, the dismal second-quarter outturn in Japan led us to consider once again the downside risks to Japanese growth from the consumption tax hike,” S&P said.

The debt watcher said economic growth could settle at 6.5 percent this year before falling to 4.9 percent in 2015 and 4.8 percent in 2016 if a slowing Chinese economy translate to a negative effect on the Philippines’ merchandise exports.

On the other hand, the ADB slashed its forecasts for this year and the next, owing to an anticipated slowdown in government spending and following the tightening of monetary policy.

Richard Bolt, ADB country director for the Philippines, said the Philippine economy is forecast to expand by 6.2 percent this year and by 6.4 percent in 2015. Both projections are lower than the 6.4 percent and 6.7 percent, respectively, announced by ADB in April.

At the same time, ADB’s forecasts are below the government’s 6.5 to 7.5 percent target for this year and the seven to eight percent goal for 2015.

“But we expect it (the economy) to remain strong on... a sustained positive business environment. We also expect rising inflows of foreign direct investments though still lower than regional neighbors [and] we expect higher investments in manufacturing and services sectors as well,” Bolt said.

He added that post-typhoon reconstruction activities are also expected to support this year’s economic growth, as well as the sustained credit growth to businesses. Merchandise exports, meanwhile, are seen benefitting from improving prospects in major industrial economies, Bolt said.

The strong economic growth will contribute to a higher inflation rate this year, along with the expected dry weather that will affect food production and the pending adjustments to power rates.