2017 GDP goal within reach — Moody’s

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Construction crew work on a section of the Metro Manila Skyway project on Araneta Ave. in Quezon City. -- PHILIPPINE STAR/MICHAEL VARCAS

By Melissa Luz T. Lopez
Senior Reporter

THE PHILIPPINES is on track to hit the low end of the government’s growth goal this year, Moody’s Investors Service said, with state spending and stronger foreign demand for the country’s goods and services expected to lift prospects this semester.

Christian de Guzman, Moody’s vice-president and senior credit officer, said Philippine gross domestic product (GDP) is expected to expand by an average of 6.5% in 2017, which if realized would hit the low end of the government’s 6.5-7.5% target range.

A sustained rise in exports alongside the rollout of big-ticket infrastructure projects are expected to fuel a faster expansion between July and December.

“Our current forecast of 6.5% is in line with the first half outturn, which has averaged just under that,” Mr. de Guzman said in an e-mailed response to queries last week.

“In the second half, we expect continued support from external demand — in terms of both goods and services exports — while government spending, especially on capital items such as infrastructure, should gain further traction,” he explained.

“Also, our forecast continues to be consistent with the bottom of the government’s target range.”

The Philippines holds a “Baa2” rating — a notch above minimum investment grade — with a “stable” outlook from Moody’s which was affirmed in June, even as the credit rater continued to flag rising political uncertainty as a key risk to the outlook.

The economy expanded by 6.5% within April-June, faster than the 6.4% climb during the first quarter but eased from the 7.1% pace logged during the comparable year-ago period in the absence of a one-time boost from election-related spending.

The quarter saw exports of both goods and services rise by 19.7%, slower than the first quarter’s 20.3% but faster than the year-ago’s 10.6%, according to the Philippine Statistics Authority.

The growth was likewise driven by a 7.1% pickup in government spending coming from a near-flat 0.1% in the first quarter and a 13.5% surge a year ago as the administration of former president Benigno S.C. Aquino III wound up its six-year term at the end of June.

Growth of household spending — which has historically contributed more than 70% to GDP — plateaued at 5.9% from the first quarter’s 5.8%, slowing from the 7.5% clocked in the second quarter of last year.

Moody’s sees Philippine GDP growing by 6.8% next year.

Mr. de Guzman said growth could clock even faster in the next few years towards the government’s 7-8% target, but much will depend on whether its P8.44-trillion infrastructure spending plan until 2022 — when the current administration of President Rodrigo R. Duterte ends its term — will go full steam.

“There may be upside to our longer-term outlook for 2018 and beyond if the Senate can pass the tax reform package without further watering it down,” the analyst said.

“In the absence of tax reform, the government may pare back its ambitious infrastructure development agenda.”

The first tax package, which was approved by the House of Representatives at the end of May, now awaits Senate approval ahead of the 2018 implementation targeted by the Department of Finance.

It provides for lower personal income tax rates, whose impact will be offset by higher excise levies on fuel, cars and sugar-sweetened drinks alongside fewer exemptions from the value-added tax.

The tax reform program, which will consist of up to five legislated packages, is key to helping finance the administration’s P8.44-trillion “Build, Build, Build” infrastructure development program.

In a separate research note, Credit Suisse said it now expects Philippine GDP to grow by 6.1% for the entire year, up from a previous six percent estimate.

The Zurich-based bank, whose forecast is less than other lenders’ projections, said economic growth could ease this semester.

“Driving this forecast is our view that private consumption will begin to weaken due to an unusually weak labor market… We also continue to expect exports to moderate in 2H from a strong 1H, partly reflecting our regional view,” Credit Suisse research analyst Michael Wan said in an Aug. 17 report.

State economic managers have said the Philippines should be able to hit its growth goal for the second straight year on the back of more big-ticket infrastructure projects.