3rd Quarter Update on the Philippines: Sustaining the Rise of the New Tiger

At the Philippine Investment Summit held last 30 January 2013, Keynote Speaker Dr. Nouriel Roubini, the “Prophet of Doom” who predicted the 2007-2008 global financial crisis with pinpoint accuracy, told the multitude in attendance of his long list of reasons for believing that the Philippines is THE bright spot in Asia. Eight months after, many things have happened, and all seems to point to the interesting fact that Dr. Roubini has now become a “Prophet of Boom”. The Philippine economy has sustained the high growth-low inflation performance from last year, and continues to show strong economic fundamentals.

A few days ago, with Moody’s Investors Service giving an investment grade rating of Baa3 ( with a positive outlook) to the Philippines, the country is now considered investment grade by all 3 major credit rating agencies. It may be recalled that Fitch Ratings and Standard and Poor’s raised their rating for the Philippines to BBB- from BB+ last March and May, respectively. This place the Philippines in “a category of countries deemed to have adequate capacity to meet financial requirements” (source: Business World).

Both the World Bank and Asian Development Bank (ADB) have also recently cited the country’s strong domestic performance, prompting it to raise its growth outlook. It predicts a 7% GDP growth rate for 2013, the high end of the 6-7% growth target of the country. This was echoed by both Fitch Ratings and Standard and Poor’s performance outlook, noting the above-target growth rate of 7.6% in the first semester. The main factors cited for the sustained growth are:

· Picking up of investment spending, with the private sector taking advantage of record-low interest rates

· Government stepped up its spending for infrastructure compared to last year

· Resilient remittance inflows (up by around 6% in July)

· FDIs (up by around 11% compared to last year)

· Fiscal and debt consolidation, including shift to domestic borrowing thus being less vulnerable to external shocks (i.e.m, the recent USA’s quantitative easing policy)

· Political stability and improved public sector governance

The structural stability of the economy is evident. Even while government stepped on the pedal in terms of spending for infrastructure and social programs, no upward push on general prices have been felt, with inflation rate remaining below 3%.

Meanwhile, both ADB and S&P reduced their performance outlook for the rest of the Asian economies, noting stymied growth in China and India, among others. From 6.4%, regional growth outlook has been reduced to 5.7%.

The country’s economic managers are one in saying that Philippines should be able to keep to its current track by continuing to implement the structural reform agenda.