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S&P sees PHL growth sustained with no danger of overheating

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MRT-7 construction
MRT-7 construction project in Commonwealth Avenue in Quezon City -- PHILIPPINE STAR/MICHAEL VARCAS

S&P Global Ratings said it is not concerned about any overheating in the Philippine economy, saying that robust investment and a growing labor force have made current growth levels sustainable.

S&P Asia-Pacific economist Vincent Conti said such levels of growth would have been a source of worry previously.

“In the previous years, half a decade or so ago, if we see Philippine growth significantly above the 6-6.5% range, we would have worried about overheating,” Mr. Conti said in a webcast Wednesday.

“But the fact is that a lot of investments have increased the capacity of the economy to grow at above 6.5% rate on a sustained basis.”

Mr. Conti said investments as a share of GDP are “much higher,” while the working-age population is still “robustly” growing.

“Both of which contribute to a higher potential growth rate for the Philippines, allowing its growth at this pace, or even faster, for a bit longer without overheating the economy,” Mr. Conti said.

The government is embarking on an P8-trillion infrastructure program, which is expected to raise public infrastructure spending to 7.3% of GDP from 5.4% this year.

Meanwhile, Andrew Wood, S&P’s Sovereign and International Public Finance Ratings Director, said the current account deficit is not an indication of an overheating economy.

“The way we look at this is mostly driven by higher capital imports which are part and parcel of the stronger investments story,” Mr. Wood said in the webcast. “It’s not very much of a concern for us and it’s not something indicative of an overheating economy either.”

Mr. Conti added that the Philippines is seeing higher capital goods and raw materials imports that contribute to the current account deficit.

The Bangko Sentral ng Pilipinas reported in March that the Philippines posted a $2.52-billion current account deficit in 2017, equivalent to 0.8% of GDP.

“When we take all of these holistically, it’s not something that’s very much of a concern for our positive outlook for the sovereign rating of the Philippines,” Mr. Wood added.

S&P last month raised its outlook on the Philippine economy to “positive” from “stable,” which raise the probability of a ratings upgrade.

S&P cited the “increasingly effective fiscal policies” enacted by the government, “marked by improvements to the quality of expenditures, still-limited fiscal deficits, and low levels of general government indebtedness.”

The Philippines holds a “BBB” rating from S&P, a notch above the minimum investment grade. Prior to the outlook revision, the rating has had a “stable” outlook since April 2015. — Karl Angelo N. Vidal