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By Melissa Luz T. Lopez, Reporter
Keith Richard D. Mariano

PHL growth outlook still deemed ‘one of the strongest’ in Asia

Posted on April 13, 2016

THE INTERNATIONAL Monetary Fund (IMF) has kept its trimmed growth forecast for the Philippines as part of a downward revision of projections worldwide, but the country is still expected to remain among Asia’s best performers with “substantial” buffers against external shocks.

IMF’s general perception of the Philippines’ relative strength coincides with that of Standard and Poor’s Ratings Services (S&P) which yesterday upgraded its own forecasts for the country.

In the April issue of its World Economic Outlook (WEO), the IMF kept Philippine growth forecasts at 6% this year and 6.2% for 2017 that were announced in February after a week-long mission to the country of the lender’s Washington-based officials.

“Real GDP growth is projected at 6% in 2016 and 6.2% in 2017, unchanged from the February 2016 IMF mission statement, driven by continued strong domestic demand and a modest fiscal stimulus in 2016. Monetary conditions also remain supportive of growth,” IMF country representative Shanaka Jayanath Peiris said in an e-mail that came with the release of the WEO.

This year, the IMF expects gross domestic product (GDP) growth to pick up from the 5.8% clip seen in 2015, which was pulled up by a faster than expected 6.3% expansion seen during the fourth quarter.

The figure is slightly above the IMF’s 5.7% forecast but fell far from the government’s official 7-8% goal that year.

The estimates are lower than the figures included in the IMF’s WEO Update published in January where the multilateral lender pegged Philippine growth at 6.2%, a tad slower than the 6.3% forecast in October last year given a “more challenging” external environment. The same reason was cited by the country’s economic managers when they trimmed their growth forecast to 6.8-7.8% this year and 6.6-7.6% in 2017.

The latest estimates for Philippine GDP growth of 6% for 2016 and 6.2% for 2017 compare to:

4.8% and 5.1% for the ASEAN-5, consisting of the Indonesia, Malaysia, the Philippines, Thailand and Vietnam;

6.4% and 6.3% for the Emerging and Developing Asia, which includes China and India among other economies;

4.1% and 4.6% for Emerging Market and Developing Economies;

and 3.2% and 3.5% for world output.

IMF said the Philippines is poised to remain one of Southeast Asia’s better performers, second to Vietnam’s 6.3% expansion, still largely driven by private consumption -- which, in 2015, contributed to roughly 70% of GDP.

“The economic outlook is one of the strongest in the region but subject to increased downside risks, including lower growth in China and the region, higher global financial volatility and capital outflows, and weather related disruptions,” Mr. Peiris said of the Philippines, while noting ample buffers against external headwinds.

“However, the Philippines’ capacity to respond if these risks materialize is substantial given its ample reserves and policy space, both monetary and fiscal.”

At the same time, Mr. Peiris added, “[o]ver the medium term, a continuation of prudent macroeconomic policies and good governance would be critical to sustain investor confidence and the growth momentum.”

“To support growth, structural reforms will also be needed to raise the low rate of government revenue and infrastructure investment, opening up the economy to greater competition and foreign investment, and benefiting from the demographic dividend by addressing skill mismatches and inequality of opportunity.”

For S&P as well, the Philippines remains a “bright spot” in Asia and the Pacific.

In its Credit Conditions report “China, Commodities, And Capital Flows Make For A Choppy Ride For Asia-Pacific In 2Q 2016,” the global debt watcher projected Philippine GDP to rise 6% and 6.3% this year and the next.

S&P previously forecast a slower 5.7% and 5.9% economic expansion in the same years for the Philippines, which has a BBB long-term sovereign credit rating and a “stable” outlook.

“The Philippines has been a bright spot, with strong growth driven by consumption and business process outsourcing, although there is some political transition risk as well due to this year’s elections,” according to the report S&P released yesterday.

The upward revision in the debt watcher’s growth forecasts for the Philippines reflects upbeat prospects for domestic investment and infrastructure development, S&P economist for Asia-Pacific Vince Conti noted in an e-mail.

“We increased our Philippine GDP growth forecast on the back of a slightly better view of domestic investment,” Mr. Conti said.

“Though the upcoming elections may temporarily put some investors on the sidelines, we are getting the sense that the candidates’ views on economic and business policies do not vary greatly, suggesting some continuity.”

The exemption of public-private partnerships, involving mostly infrastructure projects, from the March 25-May 8 election ban on public works provides “some extra growth boost” to the domestic economy, Mr. Conti said.

“Besides some extra investment momentum, consumption remains the main pillar of growth, driven by a fast-growing middle class. This dynamic is hard to derail significantly given its long term and demographic nature, as well as the absence of an over-saving culture in the Philippines in contrast to its East Asian neighbors.”

On the other hand, weak external demand remains a continuing concern. Mr. Conti flagged this as the “main headwind for the Philippine economy, with global growth and world trade struggling to gain traction.”

In a separate report titled “Asia-Pacific Credit Outlook 2Q 2016: Downgrade Momentum Will Continue,” S&P noted that downgrades and defaults will likely “significantly” outpace upgrades for the rest of the year and until early 2017.

“That’s because the impact of China’s economic slowdown and weak commodity prices is still working its way through the region,” read the report released also yesterday.

The slowdown of China’s economy and worse-than-expected falls in commodity prices would have the largest impact on Asia-Pacific industries engaged in building materials, capital goods, metals and mining, oil and gas, and real estate development.