Barclays raises PHL growth forecast to 6.5%, sees investment grade soon
British banking and financial services giant
Barclays raised its growth outlook for the Philippines this year as external
headwinds mellowed and election-related spending is expected to kick in.
It, likewise, maintained its projection that
the country could snag its first investment grade rating by the second half of
2013 given a “reform-focused government and solid external balances.”
“With external demand also gradually
improving, we are revising up our growth forecasts: 2012 to 6.5 percent and 2013
to 5.9 percent,” Barclays said in an e-mailed report, “Philippines: Reaching
investment grade,” on Monday.
The bank earlier projected Philippine growth
to settle at 6.2 percent in 2012 and 5.6 percent in 2013.
Socioeconomic Planning Secretary Arsenio Balisacan noted gross domestic product (GDP) will
settle at 6.5 percent in 2012, while the policy-setting Development Budget
Coordination Committee kept a 6 percent to 7 percent growth target in
2013.
Citing the 7.1 percent expansion in the third
quarter of 2012, Barclays said “growth remains solid in the Philippines...
driven by household consumption and government spending.”
The higher growth projection for 2013 hinges
on expectations of a recovery in exports as demands picks up in markets abroad
and a spending boost from the mid-term elections.
“Based on experience of previous ballots,
election-related spending typically boosts growth one to two quarters before the
elections,” the report read.
“In addition, export performance is gradually
improving in line with external demand,” it added.
In an interview, University of Asia and the
Pacific economist Victor Abola said Barclay's 2013 projection was “quite
low.”
“The government has more funds to put into
infrastructure spending. And spending is actually faster in non-presidential
elections versus presidential elections,” he noted.
“A slowdown this year is not what we're
looking at,” Abola said.
PHL outperforms
Given the strength of the economy and a
favorable fiscal position, the Philippines will finally get a credit rating
upgrade to investment grade, according to the bank.
“We maintain our view that the Philippines
will receive its first investment grade rating in
H2 13 (second half of 2013), with a follow-up
upgrade likely in H1 14 (first half of 2014),” the report read.
Last month, Barclays said that as long as fiscal and
governance reforms are on track the Philippines could snag an investment
grade from credit rating agencies.
In its latest report, the bank noted an
investment grade may actually be awarded sooner with the Philippines showing
stronger fundamentals than others in its regional peer group.
“With the Philippines’ credit metrics
outperforming the group, there is a possibility that the Philippines could be
upgraded to investment grade ratings sooner than expected,” the report
read.
Last month, Standard and Poor's – which rates
the Philippines at BB+, or one notch below investment grade – raised the
country's credit outlook to positive from stable. This means that the debt
watcher could raise the country's sovereign rating in the next 12 to 18
months.
A similar move was made by Moody's Investors
Service. Despite keeping the Philippines' rating at Ba1 or one notch below
investment grade, Moody's said fundamentals place the country well within the
Ba1 to Baa2 ratings range, or as much as two notches above the investment grade
– or within the lower medium investment grade.
Fitch Ratings has kept the country's rating
at BB+ with a stable outlook.
“We continue to expect Fitch... to change
its outlook to positive in the coming three months,” said Barclays.
“Well, if our numbers are okay – favorable
tax collection-wise – then that would be possible,” said UA&P's Abola
Inflation to settle at
4.1%?
Strong growth, however, may stoke inflation
in the medium-term, said Barclays, projecting consumer prices to settle at 4.1
percent – still within the Bangko Sentral ng Pilipinas expectations.
Inflation settled at a benign 3.2 percent in
2012, and the Bangko Sentral kept its 3 percent to 5 percent target in
2013.
As such, Barclays expects monetary
authorities to raise interest rates by 25 basis points in the fourth quarter to
keep inflation in check.
Currently, policy rates are at record lows of
3.5 percent for overnight borrowing and 5.5 percent for lending.
Abola also sees the possibility of a policy
adjustments from the Bangko Sentral Monetary Board, but he does not agree with
the inflation numbers from Barclays. “Their (Barclay's) inflation outlook is too
high,” according to the economist.
“We expect oil prices to rise at a slower
pace and this should reflect locally,” he added. — VS, GMA News
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