Debt watcher Standard & Poor’s (S&P) has raised its growth forecast for the Philippines, which is now expected to outpace other Asian countries suffering the brunt of weak demand from developed nations.
In a report released this week, it said the Asia-Pacific area was at risk of experiencing a sharp slowdown due to weak conditions in China, the region’s main growth driver.
“The main risk factor we see for the region would be a continued decline in economic activity in China,” S&P said, noting that the region was now expected to grow 5.3 percent in 2013. This is slower than the previous forecast of 5.5 percent. “Elsewhere in the region, the more domestically led [Southeast Asian] economies, headed by the Philippines and Indonesia, continue to outperform the more trade-dependent newly industrialized economies.”
S&P now sees the Philippines growing at 6.9 percent, faster than the previous forecast of 6.5 percent. The rating firm’s forecast is near the top end of the government’s official growth target of 6 to 7 percent. The International Monetary Fund (IMF) also sees the Philippine economy growing at 7 percent.
Meantime, The Bangko Sentral ng Pilipinas (BSP) will likely keep rates on hold for the next year and a half as the country continues to enjoy benign inflation amid healthy economic growth.
BSP Governor Amando M. Tetangco Jr. said there was no need to adjust current policy settings as the real economy remained insulated from the volatility in financial markets caused by economic developments overseas.
“The BSP policy rates will remain on hold at this time,” Tetangco told reporters in a text message yesterday.
“Given our assessment of the balance of risks to inflation, the domestic growth prospects and the volatilities from the external environment, there is no need to deviate from our current policy stance,” he said.
The BSP’s overnight borrowing and lending rates stand at record lows of 3.5 and 5.5 percent, respectively. Interest rates for special deposit accounts (SDA) across all tenors also stand at a record low of 2 percent.
He added the peso had space to depreciate further to as low as 44:$1 without jeopardizing the BSP’s inflation target of 3–5 percent for the year.
S&P said Southeast Asia would continue to be the “bright spot” in Asia Pacific owing to the large contribution of domestic demand in the region’s 10 members. “We forecast aggregate Asean growth at 5.5 percent in 2013 and 5.6 percent in 2014, led by the Philippines and Indonesia,” S&P said.
The Philippine economy expanded 7.8 percent in the first quarter of the year, outpacing the rest of Asia. In the second quarter, growth is expected to hit 7.5 percent, driven mainly by the domestic demand that is supported by remittances from the country’s overseas Filipino workers (OFW).
Indonesia, for its part, is expected to grow by 6.1 percent this year.
In contrast, export-reliant economies like Malaysia, Thailand, and Singapore, are expected to grow this year by 5.3 percent, 3.9 percent and 3.2 percent, respectively.