S&P says ‘impressive’ Q3 PHL growth to warrant forecast hike

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External risks, led by the future pace of US interest rate increases and geopolitical developments, remain the biggest threat to growth. -- AFP PHOTO

By Melissa Luz T. Lopez
Senior Reporter

S&P Global Ratings will likely increase its gross domestic product (GDP) growth forecast for the Philippines in the wake of the faster-than-expected expansion last quarter.

In its monthly report, the international debt watcher said the “impressive” 6.9% GDP growth clocked in the July-September period showed that the Philippine economy could expand faster than the 6.4% pace it has projected for 2017.

“The surprise in Q3 GDP puts upward pressure on our current 2017 forecast of 6.4%, even as sequential growth suggests a slight moderation on the cards for the coming quarters,” S&P said in its Asia-Pacific Economic Snapshots report for November.

A 17.2% surge in goods exports provided a big push for GDP growth during the quarter to add to the buoyant business process outsourcing sector, helping offset a slowdown in domestic consumption growth to 4.5% from 7.2% a year ago.

S&P has held on to a 6.4% growth forecast, but now sees an upside to this figure given latest developments. Economic growth averaged 6.7% in the nine months to September to log within the government’s 6.5-7.5% target, according to the Philippine Statistics Authority.

Economic managers said domestic activity will likely pick up further during the last three months of the year as more infrastructure projects are rolled out, coupled with the seasonal boost in household spending in time for the Christmas season.

In a separate report, analysts from First Metro Investment Corp. said the economy is well on track to hit their 6.5-7% forecast for the full year, supported by improving investor confidence as government spending picks up as promised.

A pickup in economic activity in the United States, Europe, Japan and China would also lift domestic conditions, FMIC said: “[W]e think exports will accelerate further in Q4, and provide the additional thrust to bring Philippine GDP growth within government targets.”

For S&P, upbeat growth prospects will likewise prompt the Bangko Sentral ng Pilipinas (BSP) to “shift to a tightening bias” in the latter part of the year.

But the BSP will not have to raise interest rates just yet given manageable inflation and uncertainty on the timing of succeeding rate hikes in the United States.

Inflation has averaged 3.2% from January-October, comfortably within the 2-4% target band.

“External factors continue to be the main source of economic risks, whether from rising protectionism overseas, geopolitical tensions or uncertainty in financial markets that could lead to capital outflows,” the debt watcher added.

BSP Governor Nestor A. Espenilla, Jr. has similarly flagged uneven monetary policy conditions in advanced economies as the biggest source of volatility for financial markets, but said that the central bank has “several anchors of stability” to weather these headwinds.

For its part, S&P said the country’s current account deficit — the first in 15 years — could trigger more episodes of sudden capital outflows amid heightened market uncertainty.

The central bank expects the full-year current account gap to settle at roughly $600 million, equivalent to 0.2% of GDP, reversing a $601-million surplus in 2016 amid increased importation of raw materials and capital goods as the Philippine government pushes its ambitious infrastructure spending plan.

The country’s balance of payments position stood at a $1.735-billion deficit as of end-October, substantially wider than the $500-million gap BSP expects for the entire 2017.

The Philippines currently holds a “BBB” rating — a notch above minimum investment grade — with a “stable” outlook from S&P.