Citing threats, analysts urge PH to take caution

The decline in global demand for Philippine exports and the territorial dispute in the West Philippine Sea are threatening the local economy’s chances of realizing its full potential, according to Moody’s Analytics.

In a research note penned by Katrina Ell and Fred Gibson of Moody’s Analytics, the Philippines, along with other major Southeast Asian economies, “remain a bright spot in an otherwise gloomy global environment.”

The Pennsylvania-based research firm noted that central banks in the region have been on the forefront of cutting interest rate even as the global outlook deteriorated, with the Philippines placing only second to Indonesia in terms of aggressiveness.

So far this year, the Indonesian monetary authorities have cut policy rates by 100 basis points, while the Bangko Sentral ng Pilipinas reduced its rates by a total of 75 basis points.

“Our baseline scenario is for the global economy to stabilize and gradually improve from around mid-2013, so we have not penciled in any further rate cuts,” Moody’s Analytics said.

“But policymakers in Asean (Association of Southeast Asian Nations) stand ready to loosen policy further should the global economy take a turn for the worse,” the report added.

In fact, the report said, Asean economies have slowed and are growing, on average, just a touch below potential.

“Even though global conditions are expected to remain soft for the next several quarters, most of Asean will continue to grow near trend,” Moody’s Analytics said. “That said, the gloomy global economic environment is a threat to the region’s upbeat outlook, and if external conditions deteriorate further, exports, investment and sentiment will soften.”

Further, the report said that a deterioration in global demand and a regional territorial dispute are the main downside risks.

The firm was referring to “increased political hostility in the region in recent months” due to disputed territorial claims in the South China Sea or West Philippine Sea, regarding the future of which a summit of Asean foreign ministers last July failed to develop a code of conduct.

“Southeast Asia has become more economically integrated, but the political environment remains a threat to further economic integration,” it added. “Asean would benefit from greater cooperation and coordination on political issues.”