Fitch eases Philippine GDP growth projection

FITCH RATINGS has tempered its growth forecast for the Philippines to match the low end of the government’s projection, in the wake of last semester’s slower expansion and amid rising interest rates.

The credit rater scaled down its full-year estimate for Philippine gross domestic product (GDP) growth to 6.5%, lower than the 6.8% given in July.

“The downward revision to our growth forecast reflects our expectation that the cumulative rate hikes by the Bangko Sentral ng Pilipinas (BSP) of 150 basis points (bp) so far this year, would support some moderation in growth,” sovereign analyst Sagarika Chandra said in an email interview.

“Further, GDP growth in the first half of 2018 of 6.3% was weaker-than-expected, which is also a reason for the downward revision to our growth forecast.”

The Philippine economy grew by a slower-than-expected six percent in the second quarter as household spending cooled at a time of surging consumer prices.

Both the second-quarter and first-half GDP growth rates compare to 6.6% a year ago.

The central bank has also stepped in to raise rates in four consecutive meetings since May, including a back-to-back 50-bp hikes in August and September in an attempt to rein in inflation expectations.

Inflation averaged five percent in the nine months to September, well above the central bank’s 2-4% target.

Fitch’s slower growth forecast matches tempered outlooks of the World Bank and the International Monetary Fund, while the Asian Development Bank pencilled in an even lower forecast of 6.4% earlier this month.

Economic managers of President Rodrigo R. Duterte followed suit and announced on Tuesday that GDP growth will likely clock in at 6.5-6.9% in 2018, slower than the original 7-8% target, amid escalating global trade tensions, tighter credit conditions and elevated world crude prices.

The Philippines holds a “BBB” rating — a notch above minimum investment grade — with a “stable” outlook from Fitch. The debt watcher said this rating balances a “favorable” growth outlook and modest debt burden against a lower per-capita income as well as “weaker governance and business environment indicators” compared to those of similarly rated economies.

Prospects look better in the next two years, Ms. Chandra said. “… [W]e expect the economy to grow at 6.7% in 2019 and 2020 driven by strong domestic demand,” she explained. “We think policy tightening by the BSP of cumulative 150 basis points so far in 2018 should help to keep inflationary pressures under control.”

The projection compares to the 7-8% annual growth goal set by the government for 2019 and 2020.