Moody’s Investors Service has cut its 2014 economic growth forecast for the Philippines despite the global credit rating agency’s positive outlook for the country’s credit conditions.
In its “Sovereign Outlook: Asia Pacific” presentation on Tuesday, Moody’s said the Philippines’ gross domestic product (GDP) may grow 6 percent this year.
That figure is lower than the 6.5 percent increase in GDP the ratings agency mentioned in April as its forecast for the country in 2014, on account of the expected robust domestic demand due to reconstruction and rehabilitation efforts in typhoon-damaged areas, as well as infrastructure development under the government’s spending plans.
Moody’s did not offer any explanation for the revision.
In the first quarter, GDP clocked in a slower-than-expected 5.7 percent expansion, falling far behind its year-earlier growth pace of 6.3 percent.
The government has set a full-year growth target for 2014 of between 6.5 percent and 7.5 percent.
PH credit outlook remains positive
Meanwhile, Moody’s retained its positive outlook on the country’s credit condition for the next 12 to 18 months.
Comparatively, most of the 22 sovereigns in the Asia-Pacific region have stable outlooks from the ratings agency, although it noted that the slowdown in China’s expansion, rising interest rates and lackluster growth in advanced countries are constraining regional economies.
“A focal point for investors has been the extent to which activity in China will cool as authorities wean the region’s largest economy off its dependence on public-backed and credit-fueled investment for growth,” the agency said in the report.
“Moody’s takes the view that policymakers [in China] will be able to achieve a soft landing, with GDP expanding between 6.5 percent and 7.5 percent this year and next. But in the case of a steeper downturn in demand, large commodity exporters such as Australia and Indonesia would be most exposed,” it said.
In contrast, Moody’s cited the Philippines as the most insulated among countries in the Association of Southeast Asian Nations (Asean) from any further slowdown in Chinese growth, given the Asean country’s reliance on domestic demand, services export, and overseas workers’ remittances.
Rising Asean interest rates
The ratings agency said that interest rates in a number of countries in Asia Pacific have started to rise from extraordinarily low levels.
Trends in global liquidity conditions will be the key driver of capital flows, especially as the US Federal Reserve navigates its exit strategy for its economic stimulus program, Moody’s said.
“Consequently, tighter funding conditions [in the US] may have differing impacts on sovereign creditworthiness depending on countries’ respective reliance on external financing,” it said.
No impact from territorial dispute
Moody’s also noted that over the past year, long-smoldering tensions have rekindled over conflicting claims in the South China Sea between China and countries in the region, in particular Vietnam and the Philippines.
Nevertheless, Moody’s said it does not expect that geopolitics will materially affect sovereign credit profiles in the region over the coming year and even further ahead.