Growth outlook upbeat

STRONG GROWTH in developing Southeast Asia is “credit positive,” Moody’s Investors Service yesterday said, with countries such as the Philippines expected to continue posting gains amid lackluster outlooks for other regional economies.

“Economic resilience in these countries is credit positive because it supports government revenues and mitigates the need for stimulus spending to support growth,” Moody’s Assistant Vice-President Christian de Guzman said in a report.

“Developing Southeast Asia’s accelerating economic growth bucks the trend of lackluster growth in other parts of Asia, particularly in China and Asia’s newly industrialized economies of Hong Kong, Singapore, South Korea and Taiwan,” he added.

Thailand’s gross domestic product (GDP) grew by an “unexpectedly strong” 4.2% in the second quarter, up from 0.4% at the start of the year. Indonesia also accelerated to 6.4% in the second quarter from 6.3% in January to March, while Malaysia saw an uptick to 5.4% from 4.9%.

“We expect the Philippines’ economy, which grew by 6.4% in the first quarter, the fastest rate in ASEAN (Association of Southeast Asian Nations), to show similarly healthy second-quarter growth,” Mr. de Guzman said.

As exports have been brought down by softening prices in international markets along with weak demand from the US and Europe, developing Southeast Asia has been supported mainly by domestic economies, Moody’s said.

Stable inflation and favorable consumer sentiment have sustained private household spending while foreign direct investments are also strong, it added, and more importantly government revenues have remained buoyant, reflecting profitable businesses and healthy labor markets.

“Although developing ASEAN’s immunity to external headwinds may not last for long, central banks in these countries have the flexibility to cut rates to stimulate activity and relieve pressure on fiscal authorities to increase deficit spending, thereby raising debt ratios,” Moody’s said.

The Bangko Sentral ng Pilipinas last month cut policy rates by 25 basis points, reducing overnight borrowing and lending rates to record lows of 3.75% and 5.75%, respectively. The government has also kept its fiscal deficit at manageable levels, at P73.731 billion as of July and well under the P279.1-billion full-year ceiling.

Official second-quarter growth data will be released this Thursday and economic managers are optimistic, claiming that the expansion could be as strong as in the first quarter.

Analysts, though, are not as confident. A BusinessWorld poll had a median forecast of 5.86% and in a separate report, Moody’s Analytics — the research arm of Moody’s — projected growth of only 4.2%.

The government has set a 5-6% target for 2012.

Moody’s urged the Philippines to seek a higher growth path as it raised its outlook for the country to positive from stable in May. The move set the stage for a possible upgrade of the Philippines’ Ba2 credit rating — two notches below investment grade — in the next 12 to 18 months.

An upgrade would align Moody’s credit rating with those of Fitch Ratings and Standard & Poor’s: both at BB+, one notch below investment grade. -DIANE CLAIRE J. JIAO, Senior Reporter, Businessworld