Fitch sees below-target growth for Philippines

The Philippines’ gross domestic product (GDP) growth this year may fall below the government’s target amid dampened household spending, Fitch Ratings said.

“We expect the Philippines’ economy to expand by 5.5% in 2024, after 5.5% in 2023 and 7.6% in 2022,” it said in its latest Asia-Pacific Sovereigns Peer Review.

Fitch Ratings’ growth forecast falls well below the government’s 6-7% target. In the first half of the year, GDP averaged 6%.

“The slower growth in 2023 and 2024 has been driven by weaker private consumption, with the post-pandemic boost fading and high (albeit moderating) inflation weighing on real incomes,” it added.

Household spending eased to 4.6% in the second quarter from 5.5% a year ago, the slowest since the coronavirus disease 2019 (COVID-19) pandemic, latest data from the local statistics authority showed.

“Nevertheless, we still forecast real GDP growth of above 6% over the medium term, supported by large investments in infrastructure and reforms to foster trade and investment, including public-private partnerships (PPPs),” Fitch Ratings said.

For 2025, it sees Philippine GDP growth averaging 6.1%, also still below the government’s 6.5-7.5% target range.

Meanwhile, the credit rater expects the National Government’s (NG) fiscal consolidation to continue at a gradual pace.

The government set its deficit ceiling at 5.6% of GDP this year. It is expected to ease further to 3.7% of GDP by 2028.

The Development Budget Coordination Committee (DBCC) kept its deficit ceilings for 2026 to 2028 but revised its revenue and expenditure programs to allow for a more “realistic and sustainable” consolidation path.

“Nevertheless, this is still consistent with a downward path for government (debt-to-GDP) over the medium term, given strong nominal GDP growth,” Fitch said.

“Asia-Pacific (APAC) sovereigns are a long way from undoing the fiscal damage left by the COVID-19 pandemic, as governments have generally prioritized growth and cushioning the public from the effects of the global inflation spike over reducing budget deficits,” it added.

Credit rating

Meanwhile, Fitch Ratings said its latest rating action reflects the country’s “strong medium-term growth, which supports a gradual reduction in government (debt-to-GDP) over the medium term and the large size of the economy relative to ‘BBB’ peers.”

In June, the debt watcher kept the Philippines’ “BBB” investment grade rating with a “stable” outlook. A “BBB” rating indicates low default risk and reflects the economy’s adequate capacity to pay debt.

“The rating is constrained by low GDP per head, despite an upward trend. Governance standards are weaker than at ‘BBB’ peers, though Fitch believes World Bank Governance Indicator scores somewhat overstate this.”

The credit rater cited negative sensitivities to its outlook, such as “reduced confidence in strong, stable medium-term economic growth.”

It also noted the possibility of failing to maintain a stable debt-to-GDP ratio amid the NG’s strategy of scaling back consolidation efforts as well as risks of decreasing foreign-currency reserves due to the potential widening of the current account deficit.

Latest data from the Treasury showed the NG’s outstanding debt slipped by 0.9% to PHP 15.55 trillion as of end-August from the record-high PHP 15.69 trillion as of end-July.

The NG’s debt as a share of GDP stood at 60.9% in the second quarter, still a tad higher than the 60% threshold considered by multilateral lenders to be manageable for developing economies.

In the first half of the year, the country’s current account deficit stood at USD 7.1 billion, accounting for 3.2% of GDP. The central bank expects the current account deficit to reach USD 6.8 billion this year, equivalent to 1.5% of GDP.

On the other hand, Fitch Ratings noted positive sensitivities, such as stronger-than-expected economic growth, sustained reductions in debt, and strengthening of governance standards.

The government aims to achieve an “A” level rating before the end of the Marcos administration in 2028.  – Luisa Maria Jacinta C. Jocson, Reporter