2019News

S&P cuts PHL outlook on ‘carryover’ risks

By Melissa Luz T. Lopez, January 22 2019; Business World

https://www.bworldonline.com/sp-cuts-phl-outlook-on-carryover-risks/

Image Credit to Business World

WEAK EXPORTS and rising costs will likely cap growth this year, S&P Global Ratings said on Monday as it slashed forecasts anew for the Philippines.

Andrew Wood, director for sovereign and international public finance ratings at S&P, said the government’s 7-8% growth goal will again be missed this 2019 as both the external and domestic environments will likely dampen prospects.

“The economy slowed last year… There’s a carryover of this. For one, on the exports side, the external conditions again might not be as supportive as they were prior to 2018. That kind of carried over to this year,” Mr. Wood said in a webcast yesterday afternoon.

“We’re going to have slightly lower credit growth probably as well, following the interest rate hikes in 2018 when the central bank looked to combat higher-than-expected inflation. That carries over too.”

S&P expects Philippine gross domestic product (GDP) to grow by 6.4% this year, which is slower than the 6.6% forecast it gave in November. Still, this is faster than the 6.2% forecast for 2018 but well below the low end of the state’s target.

The economy expanded by 6.3% in 2018’s first three quarters. BusinessWorld analysts expect a same pace for the entire 2018, ahead of the release of the official report on Thursday.

On the other hand, inflation averaged 5.2% last year, breaching a 2-4% official target band.

In response, the Bangko Sentral ng Pilipinas raised benchmark rates by a total of 175 basis points from May to November to rein in surging consumer prices. That pushed the key rate to 4.75%, the highest in nearly a decade.

Despite this, S&P expects the Philippines to sustain its above-six percent growth momentum given a boost from the local spending boom.

A relatively bigger fiscal deficit that will accommodate increased spending on infrastructure projects will be supportive of growth in the near term and even in the long run.

“You also have the relatively healthy domestic consumer factor, healthy labor markets and wage growth,” Mr. Wood explained.

“All of this will be supportive to a certain degree, but the factors on exports and credit side will take a bite too.”

The debt watcher expects Philippine growth to accelerate to 6.6% annually in 2020 and 2021, albeit still below the official government target.

The Philippines has kept a “BBB” rating — a notch above minimum investment grade — with a “positive” outlook from S&P since April 2018, signaling chances of a rating upgrade over the next two years. A higher credit rating vouches for an economy’s solid fiscal footing, allowing it to borrow at cheaper rates.

 

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