Back to below-6-percent growth?

"Fitch Solutions may have been influenced by the economy's comparatively poor performance in the first quarter."


The recent announcement of an international credit rating agency’s assessment of the Philippine economy’s 2019 prospects has provoked much discussion about its ability to achieve 6-percent-and-above GDP (gross domestic product) growth this year. The government has set a 6-percent-to-7-percent target for 2019 GDP growth.

On May 22 Fitch Solutions Macro Research, a unit of the Fitch Group of companies, announced that it had decided to lower its 2019 growth forecast for the Philippines to 5.9 percent from 6.1 percent. It expects Philippine GDP growth to “rebound modestly” in 2020, to 6.3 percent.

In deciding to lower its growth expectation for the Philippine economy Fitch Solutions may have been influenced by the economy’s comparatively poor performance in the first quarter of 2019, when it grew by 5.6 percent. The economy’s first-quarter 2019 performance was its worst since the first quarter of 2015, when it posted 5.1 percent growth. It grew by 6.2 percent last year.

Is Fitch Solutions’ a solitary voice, or will its less optimistic view of this country’s near-term economic prospects resonate with the other international credit-rating agencies—Standard & Poor’s and Moody’s Investor Services—and other institutional observers of the Philippine economic scene? That depends on whether they agree with Fitch Solutions’ justification for a lower 2019 Philippine growth prospects.

This is how Fitch Solutions justified its less sanguine view of the Philippine economy’s 2019 growth prospects: “Trade tensions and a general softening of external demand will continue to (be a) drag on headline growth … (N)et exports and weaker investment aside from government spending weighed on the headline-growth figure as trade tensions and the delay in passing the 2019 (B)udget weakened momentum.” “(We expect) a gradual recovery from the first-quarter 2019 dip. Government consumption will pick up and monetary policy will once again become more accommodative to support growth over the coming quarters.”

Will S&P, Moody’s and the institutional evaluators of this country’s near-economic prospects agree that the “external headwinds”—trade tensions and a general softening of external demand—all be a drag on Philippine headline growth during most of the remainder of 2019? Will they believe, likewise, that net exports and non-government spending will be so weak as to weigh on the headline-growth figure? Finally, will they subscribe to Fitch Solutions’ view that as 2019 progresses government consumption will pick up and monetary policy will stay on a course that lately has been accommodative of growth?

It’s possible that S&P, Moody’s and the other institutional evaluators of the Philippine economy will concur with Fitch Solutions’ judgment regarding its 2019 prospects, but it’s also possible that they will have a different—more optimistic or less pessimistic—perspective on this country’s likely economic experience this year.

If their judgments will be more sanguine than Fitch Solutions’ judgment, we will see 2019 Philippine GDP projections of 6 percent and above. If they will not be, the Filipino people may well see their country’s economy grow anew by less than 6 percent.

Such a break from the trend of recent years would truly be sad.

Topics: Fitch Solutions , Fitch Solutions Macro Research , Philippine Economy , GDP
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