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Fitch sees below-target growth for the Philippines

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Fitch sees below-target growth for the Philippines

By means of Luisa Maria Jacinta C. Jocson, Reporter

The Philippines’ gross domestic product (GDP) growth could fall below the government’s target this year amid subdued household spending, Fitch Ratings said.

“We expect the Philippine economy to grow 5.5% in 2024, after 5.5% in 2023 and 7.6% in 2022,” it said in its latest Asia-Paci report.Fic Peer Review of government bonds.

Fitch Ratings’ growth forecast is well below the government’s target of 6-7%. In the Fin the first half of the year, GDP averaged 6%.

“Slower growth in 2023 and 2024 will be driven by weaker private consumption, with the post-pandemic boost fading and high (albeit moderating) inflation weighing on real incomes,” it added.

Household spending fell to 4.6% in the second quarter from 5.5% a year ago, the slowest since the coronavirus disease (COVID-19) pandemic, the latest data from the local statistical authority showed.

“Nevertheless, we still forecast real GDP growth above 6% over the medium term, supported by major infrastructure investments and reforms to promote trade and investment, including public-private partnerships (PPPs),” Fitch Ratings said.

For 2025, Philippine GDP growth is expected to average 6.1%, also still below the government’s target range of 6.5-7.5%.

In the meantime, the credit rating agency expects that the National Government (NG) Fiscal consolidation will continue at a gradual pace.

The government has set the deficit ceiling this year at 5.6% of GDP. It is expected to decline further to 3.7% of GDP in 2028.

The Development Budget Coordination Committee (DBCC) maintained its deficit ceilings for 2026 to 2028, but revised its revenue and expenditure programs to allow for a more “realistic and sustainable” consolidation path.

“Nevertheless, this is still consistent with a downward path for government (debt to GDP) over the medium term, given strong nominal GDP growth,” Fitch said.

“Asia and the Pacific (APAC) sovereign bonds are far from undoing the fiscal damage left by the COVID-19 pandemic as governments have generally prioritized growth and protecting the public against the consequences of the global inflation spike instead of reducing budget deficits.” added.

CREDIT RATING
Meanwhile, Fitch Ratings said its latest rating action reflects the country’s “strong medium-term growth, which supports a gradual reduction in public debt (debt to GDP) over the medium term, and the large size of the economy compared to ‘BBB ‘-colleagues. .”

In June, the debt watcher maintained the Philippines’ BBB rating, with a “stable” outlook. A “BBB” rating indicates low default risk and reflects the economy’s adequate ability to service debt.

“The rating is limited by low GDP per capita, despite an upward trend. Governance standards are weaker than ‘BBB’ peers, although Fitch believes the World Bank’s Governance Indicator scores exaggerate this somewhat.”

The rating agency cited negative sensitivities to its outlook, such as “reduced confidence in strong, stable economic growth over the medium term.”

It also highlighted the possibility of failure to maintain a stable debt ratio due to the NG’s strategy of scaling back consolidation efforts, and the risks of declining foreign exchange reserves due to the potential increase in current account deficit.

The latest data from the Department of Finance shows that NG’s outstanding debt fell 0.9% to P15.55 trillion at the end of August from a record high of P15.69 trillion at the end of July.

Public debt to GDP stood at 60.9% in the second quarter, still slightly above the 60% threshold considered manageable for developing economies by multilateral lenders.

In the first half of the year, the country’s current account deficit stood at $7.1 billion, accounting for 3.2% of GDP. The central bank expects the current account deficit to reach $6.8 billion this year, equivalent to 1.5% of GDP.

On the other hand, Fitch Ratings noted positive sensitivities, such as stronger-than-expected economic growth, continued deleveraging and tightening governance standards.

The government aims to achieve an ‘A’ level rating before the end of the Marcos administration in 2028.

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