Barclays: PHL at new growth path, to snag Moody's investment grade before year-end
The Philippines has entered a higher growth trajectory
underpinned by strong domestic demand and increasing investments, British
financial giant Barclays said, forecasting that Manila will finally snag an
investment grade rating from Moody's Investors Service this year.
“We believe the Philippines remain on a new growth trajectory,” Barclays said in its latest Emerging Markets Quarterly sent to reporters on Friday.
It said the Philippine economy – which grew at the fastest rate in Southeast Asia in the second quarter – will still enjoy robust domestic demand on the back of strong remittance flow as well as government and private sector investments.
For the fourth time this year, Barclays revised its 2013 forecast for Philippines gross domestic product (GDP) growth to 7.2 percent, 40 basis points higher than the previous. It, however, kept its 2014 outlook at 6.5 percent given a high base.
The country's healthy external position and strong macroenonomic policy will allow it to weather global uncertainties and thus snag the investment grade rating from Moody's, the last among three major global debt-watchers to lift the Philippines from junk status.
“On ratings, we continue to expect Moody's to upgrade the sovereign to investment grade before year-end,” the report read.
The country received an investment grade rating from Fitch Ratings and Standard & Poor’s, while Japan Credit Rating Agency hiked the Philippine sovereign rating to two notches above investment grade.
Patrick Ella, economist at listed Security Bank Corporation, affirmed Barclays' views, saying that the Philippines' “new growth path” is due to a “strong demographic dividend” – a young, well-educated labor force fueling demand for consumer goods and underpinning the construction boom.
“A 7 to 8 percent growth should be the norm going forward,” he said by phone.
Ella also sees Moody's giving the coveted investment grade rating this year based on “good fundamentals and improved governance.”
The Philippines has a currency account surplus worth 3.7 percent of its GDP, foreign reserves at $83 billion, and declining external debt recorded at $59 billion as of March.
Although things “will not be easy,” Barclays is also of the view that government reforms will not lose steam. This, the bank said, will attract more investments.
It cited initiatives to address corruption, securing peace in Mindanao, and reforming the mining sector.
Barclays also noted government focus to pass a legislation rationalizing tax perks given to businesses, which is seen to recoup forgone revenues estimated at 1.0 to 1.5 percent of GDP.
The bank forecasts Philippine inflation hitting 2.8 percent in 2013, below the Bangko Sentral's 3 to 5 percent target, thus seeing policy settings unchanged for the rest of 2013.
“With a favorable growth-inflation trade-off, we expect the BSP to keep policy rate unchanged,” the report read, noting that a 25 basis points policy rate hike is seen only in the third quarter of 2014.
The Philippine Monetary Board kept the overnight borrowing rate at 3.5 percent and overnight lending at 5.5 percent since October last year, supporting growth.
Philippine monetary authorities will discuss policy anew on October 24. — KBK, GMA News
“We believe the Philippines remain on a new growth trajectory,” Barclays said in its latest Emerging Markets Quarterly sent to reporters on Friday.
It said the Philippine economy – which grew at the fastest rate in Southeast Asia in the second quarter – will still enjoy robust domestic demand on the back of strong remittance flow as well as government and private sector investments.
For the fourth time this year, Barclays revised its 2013 forecast for Philippines gross domestic product (GDP) growth to 7.2 percent, 40 basis points higher than the previous. It, however, kept its 2014 outlook at 6.5 percent given a high base.
The country's healthy external position and strong macroenonomic policy will allow it to weather global uncertainties and thus snag the investment grade rating from Moody's, the last among three major global debt-watchers to lift the Philippines from junk status.
“On ratings, we continue to expect Moody's to upgrade the sovereign to investment grade before year-end,” the report read.
The country received an investment grade rating from Fitch Ratings and Standard & Poor’s, while Japan Credit Rating Agency hiked the Philippine sovereign rating to two notches above investment grade.
Patrick Ella, economist at listed Security Bank Corporation, affirmed Barclays' views, saying that the Philippines' “new growth path” is due to a “strong demographic dividend” – a young, well-educated labor force fueling demand for consumer goods and underpinning the construction boom.
“A 7 to 8 percent growth should be the norm going forward,” he said by phone.
Ella also sees Moody's giving the coveted investment grade rating this year based on “good fundamentals and improved governance.”
The Philippines has a currency account surplus worth 3.7 percent of its GDP, foreign reserves at $83 billion, and declining external debt recorded at $59 billion as of March.
Although things “will not be easy,” Barclays is also of the view that government reforms will not lose steam. This, the bank said, will attract more investments.
It cited initiatives to address corruption, securing peace in Mindanao, and reforming the mining sector.
Barclays also noted government focus to pass a legislation rationalizing tax perks given to businesses, which is seen to recoup forgone revenues estimated at 1.0 to 1.5 percent of GDP.
The bank forecasts Philippine inflation hitting 2.8 percent in 2013, below the Bangko Sentral's 3 to 5 percent target, thus seeing policy settings unchanged for the rest of 2013.
“With a favorable growth-inflation trade-off, we expect the BSP to keep policy rate unchanged,” the report read, noting that a 25 basis points policy rate hike is seen only in the third quarter of 2014.
The Philippine Monetary Board kept the overnight borrowing rate at 3.5 percent and overnight lending at 5.5 percent since October last year, supporting growth.
Philippine monetary authorities will discuss policy anew on October 24. — KBK, GMA News
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