FITCH RATINGS said it downgraded its gross domestic product (GDP) growth forecast for the Philippines to 4.8% this year from the 6.8% issued in May.
“We have revised down our forecast for 2023 growth to 4.8% from 6% at the time of the Outlook revision in May 2023,” Fitch Ratings said in a brief dated Oct. 9.
If borne out, the growth indicator would come in well below the government’s 6-7% growth target for the year.
“Headwinds to growth include high interest rates, the weak external sector as well as adverse weather conditions,” Fitch Ratings said in a follow-up e-mail.
However, it noted that these obstacles to growth are “temporary.”
According to Fitch Ratings, growth is expected to accelerate to 6.2% next year and further to 6.3% in 2025. These are both below the government’s 6.5-8% targets for 2024 to 2028.
“We forecast real GDP growth of above 6% over the medium term, considerably stronger than the ‘BBB’ median of 3%, after a record outturn of 7.6% in 2022, reflecting normalization of activity after the pandemic and the government’s investment program,” it added.
The Philippine economy grew 4.3% in the second quarter, the weakest reading for the indicator in over two years. Third-quarter GDP data will be released on Nov. 9.
Meanwhile, Fitch Ratings expects the National Government’s (NG) outstanding debt as a share to GDP to decline to 53.7% this year, 53.1% in 2024, and 52.3% in 2025.
It said this was due to “strong nominal growth and narrowing fiscal deficits.”
The government is hoping to reduce the debt-to-GDP ratio to below 60% by 2025.
At the end of June, the NG’s debt-to-GDP ratio stood at 61%, still above the 60% threshold considered by multilateral lenders to be manageable for developing economies.
It cited risks that could hamper the reduction of the debt-to-GDP ratio, including slowing fiscal consolidation in order to support growth.
Meanwhile, Fitch Ratings also noted that inflation will continue to remain a cause for concern.
“Inflation has fallen to more comfortable levels in many places, although El Niño is a risk, particularly for sovereigns that have food as a large weight in the consumer price index (CPI), such as India, the Philippines and Thailand,” it added.
Headline inflation accelerated to 6.1% in September. This marked the 18th straight month that inflation exceeded the central bank’s 2-4% target.
In the nine months to September, inflation averaged 6.6%, still above the central bank’s revised 5.8% full-year forecast. — Luisa Maria Jacinta C. Jocson