The Asian Development Bank (ADB) has downscaled its growth outlook for the Philippines from six percent this year to 4.5 percent and from 6.2 percent in 2009 to just 3.5 percent, citing weak exports and direct foreign investment outflows and slower private consumption.
For developing Asia, the Manila-based financial institution said it expects growth to slow to 5.8 percent in 2009, down dramatically from the 6.9-percent growth expectations this year.
The ADB said the bleak outlook is based on the anticipated impact of the global financial crisis on emerging markets.
However, ADB head for regional economic integration Lee Jong-Wha said in the report that the crisis will be manageable “if countries respond decisively and collectively.”
“Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region’s economies to sustain a healthy if slower expansion,” he added.
One key element that could keep the growth engines warm, he stressed, is domestic demand.
“Developing Asia – which initially looked well positioned to weather the global crisis – has come under increased pressure,” the ADB official said.
“As global investors scale back emerging market assets amid continued financial system de-leveraging, Asian equities and external funding conditions have been hurt.”
The report said that despite a hefty build-up of foreign exchange reserves since the 1997 Asian financial crisis, the global credit crunch is testing Asian banks’ ability to keep lending.
Economies that depend on exports are particularly vulnerable.
“Weakening demand for manufactured goods in major industrial countries means declining export orders from Asia, with knock-on effects for industrial production,” the report said.
“Global trade volume is rapidly slowing down and is expected to barely expand in 2009, creating difficulties for regional economies that rely on exports for growth.”
Meanwhile, the ripple effects of a global recession will be felt in the region’s current account balances through tourism receipts and remittances.
Overseas remittances are an important source of income, and more importantly during a crisis, a supply of dollars for many of the region’s economies.
Remittances from overseas Filipinos account for more than 10 percent of gross domestic product (GDP). But its overall impact is greater as it has been feeding significant numbers for domestic consumption.
But if the dollar weakens next year, remittances will record slower growth than the double-digit levels in the past years, the ADB said.
Meanwhile, ADB said East Asia is better prepared to handle the crisis than most other regions in the world.
Growth in emerging East Asia – defined as the 10 Association of South East Asia Nations (ASEAN) plus the People’s Republic of China (PRC); Hong Kong, China; Taipei, China; and the Republic of Korea – will slow to 5.7 percent in 2009 down from the estimated 6.9 percent in 2008.
China’s growth is expected to moderate to 8.2 percent in 2009 from 9.5 percent in 2008 even as the government has undertaken measures to spur domestic demand to offset a slowdown in exports and private investment growth.
Further clouding the outlook is a deeper, more prolonged global recession creating persistent stress on the region’s financial systems.
“The risks to the region’s growth outlook are strongly tied to the global outlook through both trade and financial links,” Lee said. “Further financial disruptions could also exert a significant influence on consumer and investor confidence in the region.” –Ted Torres, Philippine Star
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