The El Nino dry spell may affect food inflation in the Philippines and other Asian countries, according to Fitch Ratings.
Fitch said in a non-rating action commentary that while inflation fell to more comfortable levels in many places, “El Niño is a risk, particularly for sovereigns that have food as a large weight in the CPI [consumer price index] such as India, the Philippines and Thailand.”
“This could lead to larger subsidy bills and delays in monetary easing if central banks expect second-round effects,” it said.
Fitch said growth in the Asia Pacific region remained resilient in 2023, despite the weaker-than-anticipated Chinese rebound and tighter external financing conditions.
FDI inflows into China have fallen sharply over recent quarters, which could be related to shifts in supply chains, but also cyclical factors as firms may be postponing investments amid subdued and uncertain global growth prospects, it said.
FDI inflows picked up in Singapore and Malaysia, including the electronics sector, while the rise in India is mostly geared towards services.
Fiscal deficit reduction has been relatively modest in most places this year, despite resilient growth, as governments balance their consolidation goals with economic growth aims, the debt watcher said.
Consolidation in sovereigns that had the widest deficits in 2022 tends to be small relative to the broader regional trend, it said.
Fitch earlier revised its outlook on Philippine debt to stable on strong growth.
The revision of the outlook to stable from negative reflects Fitch’s improved confidence that the Philippines is returning to strong medium-term growth after the Covid-19 pandemic, supporting sustained reductions in government debt/GDP after substantial increases in recent years.
“The revision also reflects our assessment that the Philippines’ economic policy framework remains sound and in line with ‘BBB’ peers’, despite its low scores on World Bank Governance Indicators,” it said.
“We forecast real GDP growth of above 6 percent over the medium term, considerably stronger than the ‘BBB’ median of 3 percent, after a record outturn of 7.6 percent in 2022, reflecting normalization of activity after the pandemic and the government’s investment program,” Fitch said.
Fitch revised down its growth forecast for 2023 to 4.8 percent from 6 percent at the time of the outlook revision in May 2023, reflecting a weak outturn for the second quarter, but said it expected the weakness in growth to be temporary.