Moody’s cites resilience vs domestic shocks
Moody’s Investors Service said Philippine growth prospects within the next five years rank better than equally rated peers.
The credit ratings agency said that the local economy’s resilience against domestic shocks show that it can still post growth of over six percent yearly until 2019.
The same growth rate makes it the third-best among countries with the same rating of Baa2, after India and Panama.
“The resilience of the Philippines’ real GDP [gross domestic product]growth rate in 2014—despite two large domestic shocks: the supply side disruptions resulting from Super Typhoon Haiyan in fourth quarter of 2013 and poor budget execution—support the view that potential growth exceeds 6 percent,” Moody’s said in its credit analysis for the country.
Moody’s said that using the International Monetary Fund’s estimates for real GDP growth over the four-year period between 2016 and 2019 as a proxy for potential growth, the Philippines boasts the third-most dynamic economy among Baa-rated countries.
At present, the Philippines was rated Baa2, a notch above its previous investment grade rating of Baa3.
The credit ratings agency added that the medium-term outlook for growth in the country will likely remain stronger than its Baa-rated peers because of manageable inflation, healthy household debt, robust remittances, improved competitiveness, and the rapid growth of the business process outsourcing industry.
In the report, Moody’s pointed out that while the general softening of global commodity prices are weighing on growth for other sovereigns, lower prices for imported fuels and foodstuff are translating into greater purchasing power for the Philippine consumer, given the pass-through to lower inflation.
“Such a situation provides more space for the central bank to accommodate growth, if needed,” it stated.
On the other hand, the credit rater pointed out that the share of household debt to Philippine GDP remained lower compared to other Baa-rated countries.
Moody’s noted that the level of household debt in neighboring countries such as Malaysia (A3 positive) and Thailand (Baa1 stable) has reached around 80 percent of GDP, prompting macro-prudential tightening of lending to this sector.
By contrast, in the Philippines, the stock of consumer loans is about 7 percent of GDP, it said.
Meanwhile, the ratings firm said remittance inflows from overseas Filipino workers will continue to aide private consumption, which contributed about 4 percentage points to GDP growth over the last several years.
“Personal remittance inflows reached 9.6 percent of GDP through the first three quarters of 2014. Growth in such money flows have proven robust, even through the harshest of external shocks,” it said.
The report traced the robustness of Philippine-bound remittances to the increasing diversification in terms of job scope and geographic location.
Through the first nine months of 2014, remittances were up 6.7 percent year-on-year, reflecting in part the economic recovery in the United States, it noted.
In terms of competitiveness, Moody’s noted over the past four years, the country’s ranking in the World Economic Forum’s Global Competitiveness Report jumped by 33 places to 52nd in 2014 to 2015 from 85th in 2010 to 2011.
In contrast, over the past year, emerging market peers such as India and Panama were ranked lower. India’s position fell by 11 places to 71st, and Panama was down eight spots to 48th.
“In the past year alone, the Philippines’ ranked seven places higher, spurred in part by an improved showing in sub-scores for institutional quality. In addition, significant gains were recorded over the same period in rankings for the macroeconomic environment, technological readiness, and innovation,” it said.
Lastly, Moody’s noted that the rapid growth of the business process outsourcing industry, especially in voice/call center operations, as well as the improved outlook for tourism, complements merchandise trade in supporting economic growth, employment, and the balance of payments.
“The country’s facility with English, and its low labor costs have also led to some investment in research and development; underscoring the increasing sophistication and value-added quality of economic activity,” it said.