S&P hikes PH growth to 5.9%

Malaya Business News Online – Philippine Business News | Online News PhilippinesMalaya Business News Online – Philippine Business News | Online News PhilippinesCredit rating agency Standard and Poor’s (S&P) yesterday announced it has revised higher growth prospects for the Philippines and other countries in the Asia-Pacific region.

For 2013, S&P sees the Philippine economy growing by 5.9 percent for the full year. This is almost one full percentage point higher than its earlier forecast of 5 percent. For 2014, S&P says growth could come in at 5.7 percent, faster than original 4.8 percent. For 2015, S&P offers a growth forecast of 5.4 percent.

Its forecast on the Philippines is the fourth fastest in the region after China at 8 percent, India at 6.4 percent and Indonesia at 6.3 percent. After the Philippines, Vietnam comes in at 5.8 percent.

Most of the higher revisions were due to the perceived less negative views on global credit conditions.

In the latest Ratings Direct report of S&P entitled “Global Credit Conditions Underpin Economic Growth Outlook In Asia Pacific”, Primary Credit Analyst Fabienne Michaux said that “global economic prospects have improved mildly, and risks have eased.”

“Policy actions–from the European Central Bank’s (ECB) Outright Monetary Transaction scheme and more aggressive Federal Reserve policy, to the agreement reached on the first half of the fiscal cliff in the U.S., and to Chinese policy measures aimed at avoiding a hard landing (drop in real GDP growth to about 5 percent)–have played an important role in mitigating these risks,” Michaux said.

S&P added that US economic growth prospects are brighter, and the risks associated with the Eurozone have stabilized, and they expect the region’s recession to end at the year’s end.

“We also believe growth in most of Asia Pacific and Latin America will generally hold steady or pick up this year, after slowing sharply in 2012. And although we are skeptical about its ultimate outcome, Japan’s reflation efforts are also potentially positive for regional and global economic growth,” Michaux added. Still, although risks have receded, Michaux said they have not dissipated entirely.

“The US sequester negotiations and potential postponing of difficult fiscal decisions continue to loom over the US economy. The question of whether the Eurozone would be able to build on the progress it has made in addressing its sovereign and banking sector crises remains.

Furthermore, we do not see the region returning to healthier, more normal growth rates before 2015. China also could undergo an investment correction that–if not managed by the authorities–could lead to an economic downturn. And the risk that economic growth in Brazil disappoints and weighs on the rest of South America continues,” Michaux said.

Michaux said that their base-case scenario for Asia Pacific is for 2013 growth to either hold steady or be slightly stronger than last year. The notable exceptions are Australia and Japan, where growth is expected to be slower.

Around the region, Michaux said inflation pressures have generally eased and are not a concern for most countries except in India, and China. “Monetary policy actions in the region are either easing or are on pause,” Michaux said.

Michaux added that they have factored the forecasts in the base-case scenario into their current ratings on Asia-Pacific issuers and issues. The estimates in the upside and downside scenarios contribute to their ongoing analytical assessment of the overall likelihood that a rating may be raised or lowered.

The Philippines is expecting of a credit rating upgrade from S&P this year to investment grade level after it revised its outlook for the Philippines to positive from stable.

S&P last July upgraded the country and has assigned a ‘BB+’ long-term and ‘B’ short-term sovereign credit ratings. This is just a notch below investment grade.

Normally, a positive outlook may mean a rating upgrade in the next 12 to 18 months.

S&P’s credit analyst Agost Benard said that they revised the outlook to positive “to reflect our reappraisal of the political and institutional factors underlying the ratings.”

“In our view, the current administration possesses a level of legitimacy, support, and stability that reduces political uncertainty and allows for improved legislative efficiency. This conducive political setting enables the administration to focus on its key policy objectives of fiscal consolidation, increased infrastructure provision, and poverty reduction,” Benard said.

Benard said that the ratings on the Philippines encompass the country’s relatively low income, weak fiscal profile, and high, albeit improving, public debt and interest burden. He said that these constraints are balanced by a robust external profile, as shown in a net external creditor position and strong liquidity ratios, as well as a consistent track record of moderately strong growth.

“The positive outlook reflects our more favorable assessment of the prevailing political conditions and of the administration’s improved capacity to pursue its reform agenda,” Benard said.

He said that they may raise the ratings this year on an improved government revenue structure, a continued diminished reliance on foreign currency government debt financing, or a lower government debt burden.

“We may also raise the ratings if institutional and structural reforms lead to improved investment environment, and thus better growth potential,” Benard said.

Conversely, Benard said that they may revise the outlook back to stable if the Philippines’ commitment to fiscal consolidation weakens or if the country’s external liquidity position deteriorates significantly.

Of the 22 rated sovereigns in the Asia-Pacific, Standard & Poor’s raised the credit ratings on the Philippines and South Korea during the past six months and revised the outlook on Vietnam to stable from negative.

The Philippines is looking at possibly 3 credit rating upgrades to investment grade. Aside from S&P, Moody’s Investors Service and Fitch Ratings also place the country’s credit rating to a notch below investment grade.