Fitch cuts Philippine growth forecast

By November 9, 2018Property News

BW FILE PHOTOBy Melissa Luz T. Lopez, Senior Reporter
FITCH Solutions has downgraded its growth forecast for the Philippines anew, noting that the economy is unlikely to bounce back to a faster pace due to tighter credit conditions and waning investor appetite.
In a report, the global research firm said the Philippine economy will likely grow by just 6.2% this year, down from 6.3% previously following a slower expansion logged during the third quarter.
Philippine gross domestic product (GDP) expanded by 6.1% in July-September, easing from the 6.2% climb during the second quarter to mark the slowest pace in three years.
This brought the nine-month tally to a 6.3% expansion, well below the government’s downward-revised 6.5-6.9% target.
“We believe that the Philippine economy will struggle to reverse its waning growth momentum over the coming quarters owing to tighter monetary conditions, deepening trade tensions, as well as a declining business environment,” Fitch Solutions said in a report on Friday.
The research unit said household spending will likely remain “weak” as rising interest rates, sustained elevated inflation and declining consumer confidence.
Yields have been on an uptrend following a series of tightening moves from the Bangko Sentral ng Pilipinas (BSP), which has raised benchmark rates by a total of 150 basis points (bp) since May. This comes as the central bank sought to rein in inflation expectations, just as consumer prices have been trending beyond the 2-4% target band.
Inflation has averaged 5.1% during the first 10 months, marked by a nine-year peak at 6.7% tallied in September and October. In turn, Fitch Solutions expects another 25bp rate hike from the central bank before the year ends.
Authorities said private consumption growth cooled to 5.2% year-on-year in the third quarter from 5.9% during the April-June period. The Philippines has long been a consumption-driven economy.
“The rising interest rate environment is likely to dampen consumer spending,” the report read, noting that Fitch Solutions also sees another 75bp worth of rate increases next year.
“The slowdown in private consumption and investment growth was in line with our view, and we continue to expect both GDP components to perform poorly over the coming quarters.”
Growth is seen to ease further in 2019 at 6.1%, well below the state’s 7-8% goal.
Prospects may also be dimming for investments due to dampened business confidence in light of an uncertain tax environment. The research firm cited the Philippines’ slip in ranking under the World Bank’s latest Ease of Doing Business index to the 124th rank from 113th previously.
Contents of the second tax reform package, dubbed the Tax Reform for Attracting Better and High-Quality Opportunities bill, is also creating uncertainty for investors pending its passage in Congress.
“Risks to our growth forecasts are weighted to the downside,” the analysts said. “Deepening trade tensions between China and the US are weighing on global risk sentiment, and a faster-than-expected rate hiking cycle in the US could exacerbate a possible capital flight to safety, weighing on foreign investment further.”
Investment-led growth boosted the economy last quarter, the Department of Finance said, with its share rising to 26% of GDP from 23.6% a year ago. The agency said the passage of remaining tax reforms will maintain investment growth, together with reforms to improve the local business climate and by easing limits on foreign participation.