MANILA, Philippines – The Development Bank of Singapore (DBS) expects the Philippine economy to fall close to recession due to falling exports and declining remittances from overseas Filipino workers (OFWs).
In its second quarter outlook, DBS retained its economic growth forecast on the Philippines of 2.5 percent, the slowest pace since the dot-com bubble burst in 2001.
“Our forecast reflects an economy close to a recession,” DBS said.
DBS said that although the economy is one of Asia’s less export-dependent countries, declining exports will definitely still hurt the economy.
The investment bank also said that declining remittances due to the retrenchment of overseas Filipino workers would also dampen consumer spending.
“Consumer spending – 70 percent of gross domestic product (GDP) – is vulnerable to the vagaries of the outside world, owing to worker remittances from abroad,” DBS said.
DBS expects a 15-percent drop in dollar remittances this year but does not expect this to lead to a current account deficit.
“Last year, overseas Filipino workers sent home a record $16.4 billion or nearly 10 percent of GDP. This year, however, we think remittance flows are set to contract sharply, as economic conditions in key host countries also deteriorate. Of these DBS estimates that GDP in the US, Japan, Hong Kong and Singapore – they account for nearly 60 percent of flows – will contract by a sharp 3.3 percent this year,” DBS said.
On the fiscal side, DBS expects a fiscal deficit of 2.2 percent of GDP or same as the government’s budget deficit program of P177.2 billion for 2009.
Echoing the analysis of other research firms, DBS expects monetary authorities to continue cutting policy rates.– Iris C. Gonzales, Philippine Star