The Philippine economy may grow “below potential” this year along with other economies in the Asia Pacific region, according to Moody’s Analytics.
In a commentary titled “Asia Pacific Outlook: A Slow Start to the Year,” Moody’s Analytics projected that Philippine gross domestic product (GDP) growth for 2014 may settle at 5.8 percent.
GDP is the market value of all officially recognized final goods and services produced within a country in a year, or other given period of time.
The latest GDP forecast of Moody’s Analytics is way below its earlier forecast for the year of 6.5 percent and the Philippine government’s targeted growth range of 6.5 percent to 7.5 percent for 2014.
“Similarly, our 2014 forecast for Asia is broadly unchanged, although weak first-quarter data have accentuated downside risk. GDP growth for the full year will be below potential, particularly if the first quarter undershoots, but we expect growth to accelerate in the third quarter, nearing potential rates in most of the region by year’s end,” it stated.
The analytical firm also said it expects regional growth to be near 5 percent in the second half of 2014, from just above 4 percent in the opening half, with most economies reaching their potential growth rates in 2015.
On the other hand, it said that the rise in inflation later in 2014 will prompt some central banks to tighten monetary policy, adding that the Philippines’ Bangko Sentral ng Pilipinas will follow a rate hike among developed world central banks this year and into 2015.
“Rising rates will offset some of the capital outflows triggered by the US Federal Reserve’s moves to unwind its monetary stimulus, so most regional Asian currencies should finish the year only slightly weaker than they began it,” it added.
Moody’s Analytics also said that other risks to regional growth remain stable, but there has been talk among Southeast Asian central banks of an emerging housing bubble that would be vulnerable as the Fed unwinds its quantitative easing.
“Near-term risk appears low, but if house prices continue to rise in the next couple of years it could become a concern,” it warned.
The firm said that the challenge for all Asian central banks is that if the broader economy fails to improve enough to warrant higher interest rates, then these property markets, fanned by low interest rates, could inflate problematically and may require capital controls or some other form of macroprudential action.
Moody’s Analytics is a division of Moody’s Corp. and provides expertise in economic and consumer credit analysis, credit research and risk measurement, enterprise risk management and structured analytics and valuation.