THE ECONOMY’S strong showing in the past quarter bodes well for the Philippines’ creditworthiness, Moody’s Investors Service said, as that performance stands as a testament to the country’s resilience amid external headwinds.
In its credit outlook released on Monday, the debt watcher said the faster-than-expected growth of 6.3% seen during the last three months of 2015 showed the economy’s relative strength despite the global volatility.
“The strong growth is credit positive because it demonstrates the economy’s resistance to global shocks and points to the government’s ability and willingness to shore up domestic demand amid a weak external environment,” Moody’s said in the report.
Moody’s currently rates Philippine sovereign debt a “Baa2”, a notch above minimum investment grade, with a “stable” outlook.
The fourth quarter growth in gross domestic product (GDP) is the fastest pace tallied for the year — up from the upwardly revised 6.1% in the third quarter — which brought the full-year average to 5.8%. That’s largely after revived stimulus from government spending and an uptick in domestic consumption.
Though settling below the government’s 7%-8% target for the year, the 2015 growth was a far cry from the flagging growth seen elsewhere in the region, Moody’s said.
“This strong performance comes at a time when weak global demand is slowing growth in export-oriented Asian economies, and puts the Philippines in a more robust position than many of its regional peers to weather any further global economic and financial market volatility,” the report read.
Domestic sources of growth — such as consumer spending and “relatively stable” overseas remittances — provide the country a cushion from dampened global growth and weak exports demand, the ratings agency said.
It helped that the Philippines does not have China as its top trading partner, Moody’s said, as the world’s second largest economy has troubles itself.
“Although the Philippines has not been immune to China’s slowdown, it is less reliant on Chinese demand than many of its regional peers. Whereas many Asian countries count China as their largest export partner, it is the Philippines’ fourth-largest export destination,” the report read.
“The Philippines is also much less dependent on commodity receipts for exports or fiscal revenues than its regional peers.”
WeakGLOBAL TRADE has been offset by “robust demand for Filipino services such as business process outsourcing and tourism, which the government has sought to promote.”
For 2016, Moody’s expects the Philippine economy to grow by 6%, keeping a forecast offered in September.
The debt watcher said ramped-up infrastructure investments and election-related spending ahead of the May 9 presidential polls will boost the economy further, while noting “some political uncertainty” that may arise from the change in leadership come June 30.
NO POLICY EASING NEEDED
Major central banks have eased policy rates last week in response to increasing market volatilities, but the Bangko Sentral ng Pilipinas (BSP) said it has room to hold fire on interest rates.
“We monitor what advanced economies central banks and central banks in the region do as these affect risk appetite of global investors and therefore capital flows also. Authorities will do what they believe would work for their specific circumstances,” BSP Governor Amando M. Tetangco, Jr. said in a text message.
“Also, we don’t have to move in sync. So far our fundamentals have held up against these and other headwinds, aggregate demand remains firm and inflation expectations are well anchored. Thus there is no real urgency to change stance of policy now.”
The Bank of Japan on Friday pulled a surprise move to bring interest rates in negative territory, alongside continued easing by the European Central Bank as hinted by its president Mario Draghi. This comes amid expectations of further hikes in interest rates in the United States.
Commenting on the fourth-quarter GDP data released last week, Mr. Tetangco said the robust expansion meant current policy settings remain appropriate “as of the moment.”
As for the upcoming elections, the BSP chief said it would not likely be a big source of concern for the economy: “Election spending has a small positive impact on GDP and could raise inflation slightly. But these are not expected to persist. Many of the critical economic reforms have been institutionalized, so we can expect continuity of policies.”
EYES ON CORPORATE DEBT
In a separate report, Moody’s warned that slower growth prospects across Asia would likely weigh down the ratings for corporates and debt issuers in the region, with China’s slowdown and higher interest rates in the US seen as the key sources of volatility in capital flows.
“Asian economies will outperform most other emerging markets in 2016, testament to the region’s reasonably robust fundamentals. Nevertheless, against a backdrop of subdued global demand and financial market volatility, we expect flat or slower GDP growth for most Asian economies in 2016, with headline expansion coming in well below five-year averages in most cases,” it said in a Jan. 29 report.
“Slower growth and capital flow volatility will inevitably weigh on the top-line performance of rated Asian corporates and, after several years of rising leverage and weakening liquidity, this will likely lead to further downward ratings pressure and, ultimately, defaults.”
Moody’s expects the debt ratio for companies it rates at 4.9x at end-2015, worse than the 3.8x seen in 2011.
In Asia, only the Philippines and Taiwan hold “stable” ratings for the banking system and key indicators such as the operating environment, asset quality, capital, funding and liquidity, profitability and efficiency, and government support.