MANILA, Philippines - Economic growth could hit 5.2 percent this year as strong domestic demand keeps the Philippines afloat amid the persistent weakness of the global economy, a unit of debt watcher Moody’s Investors Service said yesterday.
“We recently revised our outlook for the Philippines to 5.2 percent from 4.7 percent. The first half economic growth was pretty strong,” said Katrina Ell, analyst at the New York-based Moody’s Analytics.
The five-percent forecast for next year has been retained, she added.
The local economy expanded by 6.1 percent during the first half of the year, a far cry from the 4.2 percent recorded same period last year. This also slightly surpassed the government’s five- to six-percent target for the year.
The revision was the second for the Philippines under Moody’s watch. The credit rater initially expected economic growth to hit only four percent this year. This was revised upwards to 4.7 percent in June after a surprising 6.4-percent first quarter growth.
Ell said strong consumption and accelerated government spending have boosted domestic demand, which “sort of overcame” the weakness of the external environment.
“Basically, we have factored in the weakness of the exports but that was sort of overcame by domestic strength,” Ell said in a phone interview. Merchandise exports plunged nine percent in August, its weakest performance in eight months.
In a report released yesterday, Moody’s said the resiliency of the services sector is also a factor for the Philippines’ stellar economic performance, which has been mirrored in most countries comprising the Association of South East Asian Nations (ASEAN).
There was also a “steady rise” in investment as indicated by dipping savings and increasing bank lending.
“ASEAN’s investment drive has coincided with a decline in savings in Malaysia, Thailand, and the Philippines. This is consistent with rising domestic consumption and the deteriorating current account positions across the region,” the report said.
“If the shift towards domestic consumption continues, export competitiveness could falter as resources shift to domestic facing industries,” it added.
Nevertheless, economic health is seen to “stabilize” by the middle of next year, Moody’s said, and as such monetary authorities will likely hold off from cutting key rates further.
The Philippines experienced three rate cuts this year, putting the benchmarks 75 basis points lower to record-lows of 3.75 percent and 5.75 percent for overnight borrowing and lending, respectively.
Ell said further rate cuts for the year have been ruled out. The report, however, said “policymakers in ASEAN stand ready to loosen policy further should the global economy take a turn for the worse.”
“Risks to growth for the Philippines will be if the external weakness takes a turn for the worse, in effect, remittance could go lower,” she said.