Forecasts raised, warning aired

STANDARD & Poor’s (S&P) has hiked its Philippine growth forecasts for 2012 and 2013, but external threats may dent the country’s chances of getting an investment grade credit rating.

The economy could grow by 4.9% this year and 5% next year, S&P yesterday said in a report, up from the 4.3% and 4.5%, respectively, that it set in July as a base case scenario.

The brighter outlook came as the Philippines grew by 6.1% in the first semester, surpassing the government’s full-year target of 5-6%.

“The outlook for the second half is still subject to risks from falling external demand. However, the main growth factors — domestic consumption and, its underlying support, remittances — remain robust,” S&P said.

Domestic consumption is benefitting from a tourism and credit surge. Private investment and public spending have also picked up, it added.

Inflation, meanwhile, should hit 3.5% in 2012 and 3.8% in 2013, the credit rater said, within the central bank’s 3-5% target.

The Philippines is also expected to post a fiscal deficit of 2.5% of gross domestic product (GDP) this year, declining to 2% next year. The government has capped the deficit at P279.1 billion or 2.6% of GDP for 2012 and P241 billion, or 2% of the GDP, for 2013.

“While the current fiscal trend is fundamentally favorable … structural revenue reforms still remain outstanding. The administrative reforms that are now producing higher revenues can only do so much,” S&P noted.

It warned that Asia faced severe risks to its creditworthiness, possibly putting a stop to a string of positive rating actions.

“We do not expect the positive trend of rating changes to continue in the coming 12-18 months … Where credit metrics are already weak in their rating categories, policy mistakes or hesitance could drag sovereign ratings down.”

The biggest cause for concern is Europe’s deteriorating economic and financial situation. The United States could also experience a recession if it falls off a “fiscal cliff,” and China may see a hard landing.

“As we monitor the risks identified above, we believe that the majority of our sovereign ratings in the region would remain unchanged in the next one to two years,” the debt watcher said.

S&P rates the Philippines at BB+, putting it just one notch below investment grade.

The Aquino administration aims to secure an investment grade credit rating by 2016. –DIANE CLAIRE J. JIAO, Senior Reporter, BUsinessworld