The global credit watcher Moody’s Investors Service has ruled out the likelihood of the local economy from potentially overheating, saying current inflationary pressures, while trending at years high, are only transitory.
In a statement issued on Monday, the credit watcher clearly said overheating risks in the Philippines are “not yet material.” Moody’s rates the Philippines a “Baa2” stable and has declared it one of the fastest-growing economies in Asia Pacific and the second fastest among “Baa”-rated sovereigns.
“Our view is based on expectations that current inflationary pressures are in part due to transitory factors, infrastructure investment and favorable demographics will lift potential growth to meet rapid demand growth and the external position will remain roughly balanced,” Moody’s said.
The credit watcher further said that, while higher prices for food and nonalcoholic beverages pushed inflation higher in recent months, risks of a significant rise in inflation in the near term remains contained.
“Trends in core inflation and wage growth suggest the presence of slack in labor markets and the absence of imminent capacity constraints that would indicate more structural inflationary pressures,” Moody’s said.
Also, over the past year, the credit watcher said both domestic and foreign demand boosted economic activity, which then helped absorbed spare capacity.
“Medium term, an increasing working-age population, rising productivity and better infrastructure will lift long-term potential output and mitigate overheating risks,” Moody’s added.
The strong credit growth, which could foretell overheating, also should not be taken to indicate trouble down the line.
“Credit growth, while still faster than nominal GDP growth, has moderated and been more balanced economy-wide, rather than concentrated in sectors prone to overheating,” according to Moody’s.
“Banks’ strong capitalization and liquidity, alongside recent Bangko Sentral ng Pilipinas regulations, limit potential risks to the sovereign’s credit quality were nonperforming loans to materialize,” Moody’s said.
Image credits: Nonie Reyes