Fast growth towards better credit ratings
August 13, 2024 | 12:02 am
My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2024/08/13/613533/fast-growth-towards-better-credit-ratings/
If there is an “economic Olympics” among the world’s top 50 largest economies this month, the Philippines should get two medals — a gold medal for its unemployment rate in June 2024, and a silver medal in GDP growth in second quarter (Q2) 2024.
In my column last week (“All-time low unemployment, revenue enhancement against illicit trade,” Aug. 8), I noted that the Philippines not only had among the lowest unemployment rates around — 3.1% vs Spain’s 11.3%, Sweden’s 9.4%, India’s 9.2%, and Italy’s 7% — but it also had the biggest drop in unemployment, from 6% in June 2022 to only 3.1% in June 2024. That is equivalent to a gold medal achievement.
Last week the Philippine Statistics Authority (PSA) also released the Q2 2024 GDP performance. It was 6.3%, much higher than most projections by the multilaterals and private economic analysts. It was a silver medal achievement next to Vietnam, which grew 6.9%. In contrast, many European countries have had zero growth and some even contracted like Germany and Ireland (see Table 1).
Other big European and North American countries have not reported their Q2 2024 GDP results yet, but their recent growth numbers — Q2 2023 and Q1 2024 — were already mediocre: the UK 0.2% and 0.2%, Poland -0.6% and 2%, Netherlands -0.1% and -0.7%, Switzerland 0.4% and 0.6%, the US 2.4% and 2.9%, Canada 1.3% and 0.5%, and Japan 2.3% and -0.2%.
The Philippines’ high growth in the last quarter was mainly due to base effect, with investments or capital formation growing by 11.5% (it had low growth last year), and government consumption growing at 10.7% (it contracted last year). Household consumption, which constitutes about 75% of GDP, has been stung by high inflation and grew only 4.6%.
By industrial origin, the main sources of growth were Industry, led by the Construction subsector, and Services led by the Finance and Insurance subsectors with 8.2% growth (see Table 2).
I must congratulate the economic team.
I quote three cabinet members here from a press release:
Finance Secretary Ralph G. Recto brightly noted that “We are happy with the back-to-back good news on employment and GDP growth. Our impressive growth performance clearly demonstrates that infrastructure is our way forward. We need to build more, build better, and build faster so that Filipinos can reap the benefits of these high-impact projects at the soonest possible time.”
The day before, he had announced a positive achievement: “the Marcos, Jr. administration’s ultimate goal of reducing the poverty rate to a single-digit or 9% by 2028, as the Philippines posted its highest-ever employment and historic low unemployment rates in June 2024.”
Economic Planning Secretary Arsenio M. Balisacan looked optimistic: “Amid evolving risks and challenges, the Philippines’ economic outlook remains promising in the near and medium term… we move closer to our vision of a strongly rooted, comfortable, and secure life for every Filipino.”
Budget Secretary Amenah F. Pangandaman was equally focused and optimistic: “It feels like we won another gold medal for the Philippines… we are focused on job-creating growth and poverty-reducing growth, and we are inspired to work even harder towards our inclusive economic transformation and sustainable growth.”
These twin outstanding economic performance results should help the Philippines earn higher credit ratings on the quest for an “A.” I checked the evolution of the country’s ratings from three big ratings agencies over the past decade, and ours is consistently moving up (see Table 3).
S&P’s “BBB” means the recipient is Investment Grade with adequate capacity to meet financial commitments, but more subject to adverse economic conditions. Next is “A,” Investment Grade with strong capacity to meet financial commitments, but somewhat susceptible to economic conditions and changes in circumstances.
Moody’s “Baa” is medium-grade and subject to moderate credit risks. Next comes “A” which is upper-medium-grade and subject to low credit risk.
Fitch’s “BBB” is good credit quality, default risk is low. The next step is “A” meaning high credit quality, default risk is low, strong capacity to pay financial commitments.
An Inquirer story last Thursday bannered the possibility of an “A” rating for the country as early as 2025, quoting Ms. Pangandaman.
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