Fitch Ratings has cut its economic growth forecast for the Philippines to just 0.5 percent this year from a January forecast of 2.5 percent, reflecting shrinking consumption on the back of falling remittances and rising unemployment.
The figure is more pessimistic than the Asian Development Bank’s estimate of 2.5 percent, the International Monetary Fund’s 2.25 percent and the World Bank’s 1.9 percent. It also far below the government’s own target of 3.1 to 4.1 percent.
Manila’s budget deficit may balloon to about P222 billion ($4.6 billion), or 2.8 percent of gross domestic product (GDP), wider than a previous estimate of 2.2 percent, James McCormack, managing director of Asia-Pacific sovereign ratings at Fitch said on Monday. He added that the wider deficit would not necessarily trigger a credit rating downgrade.
“We have to look at the fiscal deterioration and try to separate how much of that deterioration is due to trying to stimulate growth and how much is due to structural weaknesses in public finances,” he told Reuters in a telephone interview.
The Philippines’ latest forecast is for a budget deficit of P199.2 billion or 2.5 percent of GDP this year.
“A big part of what we are going to see this year is probably a cyclical deterioration in the Philippines… In that sense, we probably wouldn’t be moving the rating lower during a cyclical downturn then moving it back up when the cycle turns,” he said.
Fitch rates Philippine sovereign debt at BB with a stable outlook, two notches below investment level, with a stable outlook. Standard & Poor’s has it at three notches below investment grade and Moody’s at four rungs below. McCormack said Fitch may release the results of its latest ratings review next month.
The Philippine economy is not expected to contract this year and Fitch Rating’s estimated drop of 5-8 percent in remittances is not as sharp as the decline in exports in trade-dependent Asian economies such as Hong Kong and Singapore, McCormack said.
“For the Philippines, even to grow at half a percent is a pretty good achievement in this environment.”
The government expects growth of 3.1-4.1 percent this year, with remittances flat from $16.4 billion in 2008.
Annual remittances are equivalent to more than a tenth of GDP and are a key pillar of private consumption, with Filipinos abroad paying for the education, clothing, housing and daily sustenance of their families and relatives at home.
Exports on the other hand make up about 40 percent of GDP but most of the shipments are made from imported semiconductor parts, with limited local value added, unlike in other export-driven Asian economies like Taiwan and South Korea. –Reuters