4th quarter posts stronger growth, surprises analysts

ECONOMIC growth beat expectations in the fourth quarter as higher remittances helped sustain consumer spending.

The gross domestic product increased 4.5 percent from a year earlier after a revised 5.0-percent gain in the third quarter, the National Statistical Coordination Board said yesterday.

Economists expected growth of 3.5 percent.

The economy expanded 4.6 percent last year, slowing from 7.2 percent in 2007.

“What saved us [from a recession] was the domestic economy,” Economic Planning Secretary Ralph Recto said, adding construction, real estate, food manufacturing, trade and outsourcing were the bright spots last year.

Growth in the services sector—the linchpin of the economy—dropped to 4.9 percent from 8.1 percent the previous year. Agriculture, which employs four in every 10 Filipinos, grew 3.2 percent compared with 4.9 percent in 2007, reflecting a drop in rice and corn production due to typhoon damage and high fertilizer costs.

Growth may weaken this year as a world recession cuts exports.

Already, major exporter Intel Corp. has closed its manufacturing plan in Cavite, laying off 1,800 workers and confirming fears of massive layoffs in the semiconductor industry.

The worst global financial crisis since the Great Depression may also crimp the remittances from overseas workers that fuel spending in the Philippines’ $144-billion economy.

The fourth-quarter numbers “show the resilience of the economy, but there will really be a slowdown,” said Jonathan Ravelas, a market strategist at Banco de Oro Unibank Inc.

“There will be hits” in exports and funds sent home from Filipinos aboard, he said.

Despite these concerns, Recto said he expected the economy to grow steadily due to increased spending on infrastructure projects, telling a briefing yesterday that achieving the government’s 3.7-percent to 4.7-percent growth target for this year would be a “welcome challenge.”

Vincent Tien You Tsui, economist at Standard Chartered Bank, said that although the economy slowed down in the fourth quarter and may slow further in 2009, the Philippines could escape outright recession.

“Overall, the Philippines will be better insulated from the collapse of external demand compared with other Asian economies,” as exports accounted for just a third of gross domestic product.

International Labor Organization economist Steven Kapsos said recent high-profile layoffs had not resulted in a marked increase in unemployment so far.

He said the crisis was likely to affect workers “in other ways that are somewhat more difficult to measure, such as declining hours of work, an increase in part-time work, and pressure for lower wages and less job security.”

Unemployment last year averaged 6.8 percent, or one out of 10 Filipinos in the workforce of 58.2 million. Despite the global slowdown, 3,000 Filipinos were still leaving their homes every day for jobs abroad.

About 10 percent of the population works overseas, and last year they sent home an estimated $17 billion, or one-tenth of GDP, and helped to fuel domestic consumption.

Luz Lorenzo, an economist and market strategist at ATR-KingEng Securities, believes the economy got a strong boost from private consumption because of lower commodity prices and increased government spending.

Consumer spending, which accounts for around 70 percent of the economy, rose 4.5 percent, reports said.

In peso terms, Philippine sales abroad dropped 9.2 percent and remittances gained 14.1 in the fourth quarter. Exports may fall 3 percent this year and electronics shipments 10 percent, the Export Development Council was quoted as saying.

In US dollar terms, remittance growth may slow to a range of between 6 percent and 9 percent this year as companies cut jobs and wages, according to the central bank. They rose 15 percent in the first 11 months of last year.

Recruitment for Middle East jobs may make up for weaker hiring in other countries, Recto said. Locally, companies may fire as many as 100,000 workers this year, he said.

The nation may miss its target of one million outsourcing jobs in 2010, the Business Processing Association of the Philippines said this week. Electronics manufacturers are firing workers and reducing work hours, the Semiconductor and Electronics Industries of the Philippines Inc. association said. Holcim’s local unit this month said it was cutting production 12 percent on weak demand.

“Our administration must harness all the resources and the unity we can muster to provide job creation and economic stimulus at a time when it is most needed,” President Arroyo said in a speech yesterday at the Clark Special Economic Zone.

“The global financial turmoil has spread and jeopardized the well-being of people across the globe,” she added. “Two-thirds of the world is in recession but we should all be proud that our country is growing.”

Recto this month said Mrs. Arroyo’s economic stimulus plan aimed to spend 60 percent to 80 percent of this year’s infrastructure budget in the first half.

The central bank last month cut its key interest rate for the first time in 11 months, lowering the benchmark to 5.5 percent from 6 percent.

Services increased 4.9 percent, industrial production gained 5 percent, and agriculture climbed 2.8 percent, according to yesterday’s report. Government spending rose 4.7 percent.

Bangko Sentral Deputy Governor Diwa Guinigundo last week said there was room for further rate reductions as the global recession may be “longer and deeper” than initially expected.

Nine of 13 economists surveyed by Bloomberg expected the central bank to lower borrowing costs again, by half a percentage point to 5 percent, with the rest predicting a quarter-point cut.

“The monetary board would likely adopt a cautious stance given the still strong growth compared to other economies in the region,” said Frederic Neumann, a Hong Kong-based economist at HSBC Global Research who expects the central bank to lower its benchmark by 25 basis points.

“There’s no need for aggressive rate cuts at this stage.” Roderick T. dela Cruz, Joyce Pangco Pañares, Bloomberg, AP, AFP