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Thursday, March 28, 2024

Moody’s sees GDP growing by 6.5%

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GLOBAL debt watcher Moody’s Investors Service raised its growth forecast for the Philippines this year to 6.5 percent from an earlier assumption of 6.2 percent, due mainly the government’s higher fiscal expenditures, robust private investments and consumer spending.

We expect the largely domestic drivers of growth to remain intact over the next year. Government spending should stay accommodative on the back of efforts to improve budget execution, while the outlook for private investment is robust, Moody’s said in a report Tuesday.

It said private consumption could slow, as firming oil prices pass through to marginally higher inflation. But it said robust real income growth would continue to support consumer spending.

Overall, we expect real GDP growth to remain at around 6.5 percent in 2016 and 2017, up from 5.9 percent in 2015, Moody’s said.

The economy grew 6.8 percent in the first quarter before accelerating further to 7 percent in the second quarter driven mainly by election-related spending, robust consumer demand and investments. This brought the first-half average to 6.9 percent, which is near the upper bound of the Duterte administration­ target range of 6 percent to 7 percent.

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Moody’s also said the Philippines economic and fiscal fundamentals remained sound despite the persistence of credit challenges, including low government revenue and infrastructure deficiencies.

Moody’s conclusions were contained in its recently-released credit analysis titled “Government of Philippines—aa2 stable,” which examined the sovereign in four categories such as economic strength, which is assessed as “high”; institutional strength “moderate (+)”; fiscal strength “moderate (-)”; and susceptibility to event risk “low”.

The credit watchdog said political risks in the country have become less predictable.

In terms of the economy, low and stable inflation­—ided by global oil prices—as supported robust private consumption. The pick-up in government spending over the past year has also stimulated capital formation without derailing debt consolidation. And, the strength of domestic demand and services exports will provide a strong buffer to external headwinds to merchandise trade and remittance growth over the next one to two years, Moody’s said.

Moody’s said the report was an annual update to investors and not a rating action.

Moody’s assessment of the Philippines’ rating incorporated the assumption that economic and fiscal governance will be anchored by the administration’s 10-point Socioeconomic Development Agenda.

Moody’s says that progress on this agenda could ultimately depend on whether the president deploys his considerable political capital towards associated reforms. In particular, success in efforts to accelerate infrastructure development and tax reform would be credit positive. At the same time, a sustained focus on political issues could detract attention away from reform, it said.

It said the stable outlook on the Philippines’ rating suggested that upside and downside risks were balanced.

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