By Luz Wendy T. Noble
GLOBAL DEBT WATCHER Fitch Ratings, Inc. has cut its economic growth projection for the Philippines this year, making it one of the last outfits to do so in the wake of disappointing gross domestic product (GDP) performance in the past quarters.
“We expect private consumption and government spending to remain key drivers of growth and for 2019, we expect growth of six percent,” Sagarika Chandra, associate director for Asia Pacific sovereigns at Fitch Ratings, said in an e-mail late last Tuesday.
Fitch had slashed its Philippine GDP growth forecast for 2019 to 6.1% at the end of May after the government reported 5.6% first-quarter expansion on May 8. Before that, Fitch had cut its 2019 projection for the country to 6.2% on April 24 from the 6.6% it gave in December last year, citing late enactment of the 2018 national budget on April 15 that deprived new infrastructure projects of funds.
A ban on new public works 45 days ahead of the May 13 midterm elections left planned new infrastructure projects idle in the first half, resulting in a 5.5% second-quarter GDP growth reported on Aug. 7.
First- and second-quarter growth rates compared to the past year’s respective 6.5% and 6.2%.
On Nov. 6, the Philippines Statistics Authority reported that GDP growth picked up to 6.2% in the third quarter as the government started to catch up with its spending program.
State spending contributed about 11.757% to GDP in the first three quarters, compared to 67.3% for household consumption.
The first three quarters saw GDP grow 5.8%, compared to the year-ago 6.2% and the government’s 6-7% target for 2019.
But even with its reduced GDP growth projection, Ms. Chandra noted in her e-mail that the “Philippines is among the region’s fastest-growing economies.”
Fitch’s latest Philippine GDP growth projection for 2019 compares to the International Monetary Fund’s 5.7%; 5.8% of the World Bank and Moody’s Investors Service; as well as the six percent of the Asian Development Bank, the ASEAN+3 Macroeconomic Research Office, S&P Global Ratings and Fitch Solutions, sister company of Fitch Ratings.
Last January, the United Nations Department of Economic and Social Affairs, the UN Conference on Trade and Development and the five UN regional commissions gave a 6.5% projection for this year, while the Organization for Economic Cooperation and Development in November 2018 cut its forecast for this year to 6.5% from the 6.7% outlook it gave in July 2018.
In the Fitch Ratings 2020 Outlook: Asia-Pacific Sovereigns report e-mailed to journalists on Nov. 25, the debt rater noted that economies it has been tracking “have seen a slowdown in growth in 2019, and many will see a further decline in 2020 under our baseline.”
“This typically reflects the impact of US-China trade tensions and slower global demand,” Fitch said.
“The region nevertheless is proving economically resilient,” it added, particularly noting that “Southeast Asian economies benefit from robust consumption and favorable demographics, while a few have gained from trade and investment diversion.”
“Overall growth, while slowing, remains somewhat resilient, allowing APAC to maintain its position as the world’s fastest-growing region. The reasons for the resilience vary across economies, with some benefitting from robust consumption trends and favorable demographics — especially in Southeast Asian economies such as Indonesia, Malaysia and the Philippines — and others from a pivot toward growth-supportive policies.”
Ms. Chandra said that further monetary easing remains on the table for 2020 after the 75-basis-point cumulative reduction in benchmark interest rates this year that partially unraveled increases totaling 175 bps in 2018. Benchmark policy rates now stand at 3.5% for overnight deposit, four percent for overnight reverse repurchase and 4.5% for overnight lending.
Monetary authorities have also reduced banks’ reserve requirement ratio by a total of 400 bps after 2018’s 200-bp cut. By December, the RRR will be 14% for big lenders and nonbank financial institutions with quasi-banking functions, as well as four percent for thrift banks, while rural banks’ RRR will be kept at three percent.
“We think there is still room for further monetary easing as inflationary pressures are subdued. Further reserve requirement cuts are likely as part of the central bank’s announced financial sector reform agenda to promote a more efficient financial system,” Ms. Chandra said.
Last May 30, Fitch affirmed the Philippines’ long-term foreign-currency issuer default rating at “BBB” — still a notch above minimum investment grade — with a “stable” outlook, meaning the rating is likely to be sustained in up to two years.