AMID the disappointingly slow growth of the Philippine economy in the first six months of the year, overheating risks have now subsided and will no longer be flagged as a problem to the economy, international credit watcher Fitch said.
In its recent Asia Pacific Sovereign Credit Overview for the third quarter of the year, Fitch Ratings said the slowing growth momentum, along with the Bangko Sentral ng Pilipinas’s (BSP) 175 basis points cumulative rate cut in 2018 have lowered overheating risks.
Fitch noted that among the indicators of dissipating overheating risks is inflation, which continued to slow down for the first eight months of 2019 to an average of around 3.1 percent compared with the 4.7 percent during the same period last year.
The slower growth for the Philippines will also not be the new normal for the country, as the credit watcher said the economy will recover, albeit modestly in the second half of the year.
“Fitch expects growth to improve in the second half of 2019 following a weak first half. Growth was weighed down by the delay in budget implementation and a weak external environment,” Fitch said.
It reiterated its full-year 2019 growth forecast of 6.1 percent, continuing to place the Philippines among the region’s fastest growing economies.
“However, we expect weaker global growth and escalating US-China trade tensions to prevent a stronger pickup in 2020 and 2021, and for growth to remain around 6.3 percent,” Fitch said.
Fitch also said the country’s current account is expected to remain in a deficit at about 2.4 percent of its gross domestic product (GDP) in 2019, driven by weak export performance.
Exports contracted by about 0.5 percent in the first half of 2019 versus the 1.1-percent growth during the same period last year.
“We expect imports to rise somewhat in the second half of 2019 with the passing of the budget,” Fitch said, adding that it expects subdued export performance and generally strong import growth in 2020 and 2021 to keep the current account in a deficit of between 2.5 and 2.6 percent of GDP.
For the entire Asia Pacific region, Fitch said economic activity continues to weaken on softening global demand and uncertainty associated with the escalation of the US-China “trade war.”
“The slowdown has been especially pronounced in economies exposed to the electronics sector, such as Singapore and Korea, on account of the global tech cycle and the trade dispute,” Fitch said.
“Growth is showing more resilience in economies with strong domestic demand and room for monetary and fiscal stimulus,” it added.
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