Moody’s raised its 2016 growth forecast for the Philippines as it expects spending from both the government and consumers to remain robust.
The Southeast Asian economy will probably rise 6.5 percent this year, the debt rater said in its latest credit note released Tuesday. In July, Moody’s had said the domestic economy may expand 6.2 percent in 2016.
“Government spending should stay accommodative on the back of efforts to improve budget execution, while the outlook for private investment is robust. Private consumption could slow somewhat, as firming oil prices pass through to marginally higher inflation. But robust real income growth will continue to support consumer spending,” Moody’s said in its report.
In fact, the resilient domestic demand has shielded the country against external shocks including the slowing Chinese economy, it said.
This puts the Philippines in a sweet spot versus its peers.
“Given the strength of domestic demand and services exports, the Philippines’ economic growth has outpaced many of its rating peers. In particular, many Baa-rated countries continue to face growth pressures stemming from the decline in commodity prices, including Kazakhstan (Baa3 negative), South Africa (Baa2 negative) and Trinidad and Tobago (Baa3 negative),” Moody’s said.
“In 2016 and 2017, we expect that only India will be the only Baa-rated country to record faster real GDP growth than the Philippines.”
Moody’s latest forecast is within the government’s 6 percent to 7 percent growth target this year, and slightly higher than that of the World Bank, IMF and the ADB, who all estimated this year’s economic expansion at 6.4 percent.
For 2017, Moody’s also sees GDP rising at 6.5 percent, expecting the key domestic drivers of growth to remain solid.
Rajiv Biswas, Asia-Pacific chief economist for IHS Markit, said GDP growth outlook for the Philippines this year has improved significantly following the strong economic growth momentum in the second quarter, as well as the upbeat factory output recorded in August.
The economy expanded at a forecast-shattering 7 percent year-on-year in the second quarter, while manufacturing production volume rose 13.5 percent in August.
But Biswas cautioned against political instability.
“International investors prefer a stable political climate that provides a safe and predictable regulatory and operational environment for their large-scale foreign direct investment decisions,” Biswas said in an e-mailed statement.
The country’s solid economic fundamentals support the debt rater’s Baa2 rating on the Philippine sovereign.
It said low and stable inflation, aided by global oil prices, has supported robust private consumption in the country, while the pick-up in government spending over the past year has also stimulated capital formation without derailing debt consolidation.
Moody’s also noted that the government’s 10-point agenda, including the proposed tax reform measures, and higher infrastructure spending, will support the ratings.
“In particular, an acceleration of infrastructure development and the passage of comprehensive tax reform would be credit positive,” it said.
The firm said the “stable” outlook on the rating suggests that upside and downside risks are balanced.