Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. ruled out the possibility of an economic recession, expressing optimism that private consumption would continue to support economic growth.
However, Tetangco said investors are likely to stand in the sidelines and wait, marking a critical downside to the country’s growth momentum in 2009.
According to Tetangco, the expansion of the economy in the fourth quarter of 2008 was an indication of an underlying resilience supported by consumption which grew by 4.5 percent.
“Consumption is strong and that’s a sign of resilience,” he said.
Tetangco said that even during the crunch in 1997 to 1998 that followed the Asian crisis, the country’s economy did not slip into recession because consumption did not slow down as much.
“Our growth never turned negative, not even at the height of that crisis,” he said. “Our neighbors registered negative growth but ours stayed positive because domestic consumption did not go down that much.”
According to Tetangco, the only time the Philippines went into recession was in 1985 and 1985. “That was largely because of political uncertainty as well as other factors,” he said.
Tetangco said even in 2008 when the economy was being battered by historically high oil prices and surging inflation, retailers were reporting that their sales doubled.
“Mall owners said they saw doubling of sales last year compared with 2007,” he said. “That’s also because there are more malls, more outlets, that sort of thing. There are people who are spending.”
“I think domestic consumption will continue to grow,” he added.
Because government spending would increase this year due to its pump-priming activities, Tetangco said the only downside to demand was investment.
“We only need to watch investments and investments will probably wait and see,” Tetangco said. “But consumption continues to grow.”
Tetangco’s reading of the Philippine economy was made significant by the shift in the policy stance of the Bangko Sentral ng Pilipinas which started easing its policy settings in December to support growth targets against the global economic slowdown.
At its policy meeting last week, the BSP cut its key policy rates by 50 basis points and according to Tetangco, this should allow interest rates to remain tame despite the increase in risks due to the financial crisis that hit the US.
The market is predicting further easing going forward as growth slows down in tandem with the global trend but Tetangco’s optimism about growth prospects would temper these expectations even with the inflation rate dropping back within the target range.
After surging to double-digit levels in 2008, monetary officials said they expects the inflation rate would drop to as low as 3.9 percent this year and rise slightly to 4.7 percent in 2010.
Since foreign exchange inflows were not projected to be dramatic this year, easing inflation would give the BSP an even bigger room to calibrate its policy settings.–Des Ferriols, Philippine Star