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By Daryll Edisonn D. Saclag and Mikhail Franz E. Flores, Reporters

S&P, banks cut Philippine forecast

Posted on November 28, 2014

STANDARD & POOR’S (S&P) has slashed its forecast for the Philippines this year and tagged as added downside risk to full-year economic growth the marked third-quarter slowdown the government reported yesterday.

Also yesterday, two banks downgraded their separate projections, while a third likewise flagged just-reported third-quarter data as risk to its own forecast.

In a report, titled “Economic Research: Asia-Pacific Economies Limp Toward Higher-Quality Growth” and released a day before the Philippine government reported official third-quarter gross domestic product (GDP) growth data, the credit rating agency said it sees the economy growing by 6.4% this year, down from its 6.6% forecast in September.

But the report saw S&P also adjusting Philippine growth forecasts to 6.3% from 6.2% for 2015 and to 6.0% from 6.4% for 2016.

The report, dated Nov. 26, did not take into account the 5.3% GDP growth recorded last quarter, which was significantly down from 6.4% in the second quarter and 7% in 2013’s July-September period. The official result was also below the 6.5% median estimate among 14 economists and bankers polled by BusinessWorld late last week.

Year to date, GDP growth averaged 5.8%, far below the 6.5-7.5% target set by government for the entire year.

Sought for comment, S&P Economist Vincent R. Conti said by phone yesterday that the debt watcher is keeping its growth projections “for now” even as he tagged the marked third-quarter slowdown as a “downside risk” to the already-revised forecast.

“At the moment, I’ll keep it as a downside risk to our forecast,” Mr. Conti said.

Similarly, DBS Bank Ltd. economist Gundy Cahyadi said his group was revising GDP growth outlook for this year and 2015. “There is a chance that overall GDP growth for 2014 will fall short of the 6% mark,” he said in an e-mail.

Last September, the economist had said he expected the economy to expand by 6.4%, up from an earlier forecast of 6.3% following the 6.4% growth seen in the second quarter.

Similarly, Barclays Plc regional economist Rahul Bajoria, in a separate e-mail, said: “As a result of the downside surprise, we are downgrading our 2014 growth forecast to 6.0% from 6.5%, but maintaining our 2015 forecast at 6.5%.”

Meanwhile, ANZ Bank economist Eugenia Fabon Victorino said: “Unless private investment ramps up into yearend, the continued slide in public spending means there is further downside risk to our recently revised growth forecast of 6.2% year-on-year for 2014.”

Despite last quarter’s slowdown, S&P’s Mr. Conti said the Philippines could still achieve a higher growth path.

“Moving forward, a 6% growth pace is still much achievable for the Philippines,” Mr. Conti said.

“There are still a lot of structural strengths in the Philippines.”

Mr. Conti said he expected a rising middle class to drive consumption stronger, as well as business process outsourcing in the services sector and higher investments to further spur growth in succeeding years.

“In my view, 2015 and 2016 does not need to change,” he said.

S&P’s downward revision to the country’s growth forecast in the report was in line with a general downtrend across Asia and the Pacific.

“Asia-Pacific economies are ending 2014 on a relatively low note as China’s growth slows under a weak property market, Japan slips into recession, and external demand has yet to meaningfully improve,” S&P said.

The next two years, however, would “appear a bit better, especially if we look beyond the headline numbers and factor in a higher quality of GDP growth, more external demand, and hopefully less credit expansion.”