S&P trims PH growth forecast

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Sees 2015 GDP growth lower at 5.6%, not 6%

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Standard & Poor’s Ratings Services (S&P) trimmed its growth forecast for the Philippine economy for full-year 2015 to 5.6 percent from an earlier projection of 6.0 percent, taking higher external volatility into account.

In a report, S&P analysts said weaker-than-expected trade data and financial turbulence generated by China have prompted them to update their Asia Pacific macroeconomic forecasts, including a revision to their estimate for Philippine gross domestic product (GDP) for the year.

S&P’s revised forecast for Philippine GDP this year stands below the 6.1 percent expansion achieved last year and the 7 percent to 8 percent growth assumption by the government for 2015.

GDP in the first quarter fell below expectations both by private economists and the government, which had to revise the figure down from a previously reported 5.2 percent to 5.0 percent.

‘Profound change in Asia Pacific’
“A slower moving but equally profound change in Asia Pacific has been the continuing poor performance of trade,” S&P said.

Citing an International Monetary Fund (IMF) report, S&P said specifically, the slowdown in trade growth in the region appears to stem mainly from on-shoring of final goods production by the US and on-shoring of intermediate goods production by China.

“Globally, the responsiveness (elasticity) of import growth to GDP growth fell to 1.3 percent for the period 2001-2013, from 2.2 percent in 1986-2000, the ‘golden age of trade.’ And, more worryingly, trade growth appears to have declined further after the global financial crisis,” it said.

This is particularly relevant for much of Asia Pacific given its relatively high dependency on external demand for growth, the report added.

Meanwhile, S&P said the combination of longstanding skepticism about the veracity of China’s economic data, the sharp correction in the equity market, the surprise currency “devaluation,” and the sudden inability or unwillingness of the Chinese authorities to control it all, have made China the biggest storm cloud of uncertainty in the global economic landscape.

“China has quickly moved from being a source of stability to what some commentators have colorfully called an ‘exporter of fear,’” it said.

With this, S&P lowered all GDP forecasts for the four major Association of Southeast Asian Nations economies (Asean 4) such as Indonesia, Malaysia, the Philippines, and Thailand.

“Growth in the major Southeast Asian countries is not as export-dependent as in the tiger economies, but the external sector will still present a headwind for this group,” it said.

“Although these economies are still exposed to weaker external demand, strong domestic demand can provide sizable offsets and keep growth at a decent pace, particularly in the Philippines, Indonesia, and, to a lesser extent, Malaysia,” it added.

Spreading cuts
Earlier, the International Monetary Fund (IMF) also warned it would revise downward its growth outlook of 6.2 percent for the country to reflect the government’s own downward adjustment of the first-quarter GDP performance.

Moody’s Investors Service has also cut its growth forecast for the Philippine economy this year to 5.7 percent from its previous projection of 6.0 percent, citing slow exports, government underspending and the impact of El Niño on agriculture.

Five of the seven analysts who had commented on the second quarter GDP figures also released reduced forecast figures for 2015, citing weak exports and uneven global growth as risks.

Analysts from the Bank of the Philippine Islands, Metropolitan Bank and Trust Co. (Metrobank) Research, Singaporean bank DBS, London-based research consultancy firm Capital Economics, and United Kingdom-based investment bank Barclays now expect the year’s GDP growth in the range of 5.5 percent to 6.2 percent.

Meanwhile, analysts from Fitch Group’s think tank BMI Research and Standard Chartered Bank had chosen to keep their 2015 GDP outlook unchanged at 6 percent and 5.7 percent, respectively.

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