Debt watcher Fitch Ratings is seeing a slower Philippine economy as it trimmed down its growth forecast for the country this year.
In a report titled “2014 Outlook: Emerging Asian Sovereigns,” Fitch said that the country’s economy, as measured by its gross domestic product (GDP), may slow down to 5.5 percent this year.
The debt watcher’s forecast this year was lower compared to its 7-percent estimate for the economy in 2013. The forecast was also lower than the 6.5-percent to 7.5-percent GDP target of the Development Budget Coordination Committee this year.
However, Fitch said that the Philippines, which received an investment grade status in last year, may recover in 2015 with a 6-percent GDP growth.
Meanwhile, the report said that emerging Asia will still be the strongest of any global region this year. However, Fitch expects the region to grow by 6.5 percent in 2014, the slowest regional rate since the 1998 Asian financial crisis.
Emerging Asia consists of countries such as China, India, Indonesia, Malaysia, Mongolia, the Philippines, Sri Lanka, Thailand and Vietnam.
“Tighter US dollar funding conditions brings into focus the levels of leverage and external sustainability for regional economies. China’s slowdown and rebalancing has already had an effect on commodity prices and regional commodity exporters,” it stated.
The Fitch report further said that market sentiment toward emerging markets and riskier assets shifted in the wake of US Federal Reserve Chairman Ben Bernanke’s comments to Congress in May 2013 regarding the Fed’s move on its bond-buying program.
“Fitch expects the imminent commencement of tapering to have a similar but more muted effect for emerging Asia than the false start of mid-2013,” it added.
The debt watcher also expects emerging Asia growth to remain stable, if not solid, in 2014 and 2015 despite increasingly challenging external and domestic environments.
“In either case, emerging Asia growth is unlikely to reaccelerate to pre-global financial crisis levels in the short to medium term,” it said.
The Fitch report also said that the domestic economic environment is becoming more challenging for emerging Asia, as the commencement of Fed tapering this year will lead to tighter global liquidity conditions.
It said that some of the key factors that could begin to restrain growth prospects, particularly in the Southeast Asian region, include maturing credit cycles, slower growth in China, and falling commodity prices.
“In Fitch’s base-line scenario, QE [quantitative easing]tapering will unfold in an orderly fashion for emerging economies,” it also said.
The debt watcher said that emerging markets are again likely to be in the spotlight, however, as they are relatively prone to “hot money” flows.
“When tapering really takes off, Fitch expects a similar but less pronounced impact for Asian asset prices, as witnessed over the summer of 2013. It seems that part of the price adjustment has already taken place in 2013 ahead of the actual tapering, and market participants have had time to adjust to the idea of falling demand for Asian assets,” it stated.