Moody’s cuts two-year Philippine growth forecast

MANILA, Philippines - Moody’s Investors Service slashed its economic growth projection for the Philippines for this year and next year amid the subdued global growth exacerbated by weaker demand in China.

In its latest report on Asia Pacific Sovereigns titled “Credit profiles resilient to slowing exports, subdued domestic demand,” Moody’s scaled down the gross domestic product (GDP) growth forecast for the Philippines to 5.7 percent instead of 6.7 percent this year and to six percent instead of 6.5 percent next year.

The Philippines recorded a slower growth of 5.3 percent in the first half of the year from 6.4 percent in the same period last year on the back of weak global demand and lack of government spending.

The country’s GDP growth accelerated to 5.6 percent in the second quarter of the year from the revised five percent in the first quarter of the year on improved government expenditures.

 “In the Philippines, slowing export growth and fiscal underspending weighed on output in the first half of the year. On the supply side, the El Niño-related dry spell hurt agricultural production, contributing to our lower GDP growth forecast of 5.7 percent for 2015,” Moody’s said.

The debt watcher expects GDP growth to pick up in the second half of the year supported by higher government spending on major infrastructure projects.

 “Nevertheless, we expect fiscal disbursements to accelerate in the second half, and to see further progress on infrastructure development related to the government’s public private partnership program,” it added.

Economic managers have penned a GDP growth of between seven and eight percent this year.

However, Socioeconomic Planning Secretary Arsenio Balisacan earlier admitted the country’s GDP expansion could settle between six and 6.5 percent this year.

Moody’s lowered the GDP growth for Asia Pacific countries excluding China, India, and Japan to three percent instead of 3.6 percent this year and to 3.2 percent instead of four percent next year.

 “High frequency indicators suggest the pace of economic expansion across Asia Pacific is cooling. Consequently, we have adjusted downwards our forecasts for GDP growth for many Asia Pacific sovereigns. Whereas we previously expected regional output to pick up from this year to next, we now expect a slower but solid rate of growth in both 2015 and 2016,” it said.

China’s GDP growth forecast was retained at 6.8 percent this year and lowered to 6.3 percent from 6.5 percent next year, while that of India was slashed to seven percent from 7.5 percent this year and to 7.5 percent instead of 7.6 percent next year.

 “The move illustrates a weaker outlook in the region and in other parts of the world,” the debt watcher said.

Despite the lower forecast set by Moody’s, the GDP growth of the Philippines would be faster than Malaysia’s 4.8 percent, Indonesia’s 4.7 percent Thailand’s 2.5 percent, Singapore’s 1.7 percent, and Taiwan’s 1.5 percent.

However, the country’s GDP growth this year would be slower than China’s 6.8 percent and Vietnam’s 6.3 percent.

 “Fiscal underspending also continues to be an issue, particularly in Indonesia and the Philippines. In recent years, governments there have pledged to channel funds into growth-enhancing infrastructure and other investment, but have repeatedly missed their targets,” Moody’s said.

Moody’s said weak demand from China has dampened the overall export outlook for the Asia Pacific region while softer commodity prices weigh on some countries’ export revenues, external positions, and fiscal balances.

Despite the lower growth outlook, the debt watcher explained the sovereign credit profiles in the region would remain resilient as risk to deflation is minimal and government debt-to-GDP levels are largely moderate.