MANILA, Philippines — The Philippine economy is set to recover from the “temporary” slowdown it experienced in the first half due to the delayed approval of the 2019 national budget, Moody’s Investors Service said Friday.
The economy expanded 5.5% in the second quarter, weaker than 5.6% recorded in the preceding three months after the delays in budget implementation and the ban on public works during the midterm election stalled state spending.
The latest reading was the slowest in 17 quarters.
READ: Philippine economic growth slows in Q2
In a credit analysis, Moody’s said the economy should rebound as the government catches up on infrastructure spending.
“[Gross domestic product] growth could accelerate further as government increases infrastructure investment,” the global debt watcher said.
“Broad macroeconomic and financial stability remains intact: headline inflation has been restored to within the central bank's target band, while the balance of payments has remained stable despite a widening trade deficit,” it added.
Socioeconomic Planning chief Ernesto Pernia said the economy would have to grow by an average of 6.4% in the second half to hit the low-end of the state’s 6%-7% annual target.
Public construction contracted 27.2% in the second quarter, offsetting the growth posted by private construction. Meanwhile, government consumption grew 6.9% from April to June, slower than 11.9% expansion registered in the same period in 2018.
Hours after the release of disappointing GDP print, the Bangko Sentral ng Pilipinas cut its benchmark interest rate and hinted at further monetary policy easing to support growth.
READ: BSP cuts interest rates amid cooling inflation, disappointing GDP
Moody’s credit rating for the Philippines stands at “Baa2” — a notch above the minimum investment grade — with a “stable” outlook. A higher rating can lower the cost of borrowing in foreign currencies for the government and Philippine companies, giving them access to a wider pool of funds.
In the same assessment of the Philippines, Moody’s said the momentum for fiscal reform “has been sustained,” improving prospects for a further improvement in the Philippines' fiscal profile.
“Long-term economic prospects are bolstered by favorable demographics, strong human capital and the government's current infrastructure push,” it said.
“These positive features are balanced against low per capita incomes and, consequently, low revenue-raising capacity when compared with other Baa-rated countries,” it added.