Deeper, longer backlash of recession seen — BSP

Published by rudy Date posted on March 16, 2009

The Bangko Sentral ng Pilipinas (BSP) now estimates the effects of the global downturn on the local economy to last at most one and a half years more, which was longer than its initial estimates.

There are indications the downturn will hurt more economic sectors and possibly last longer than originally expected, BSP Deputy Gov. Diwa Guinigundo said. The historical evidence shows the current recession among major countries to last one and a half years, he added.

“No one knows for sure how much longer or deeper this will be. But the broad consensus is that this episode will be deeper and longer,” he told the Chamber of Thrift Banks last Friday.

He said some of the views were based on frequent revisions by both the World Bank and the International Monetary Fund which both incorporated revised outlooks in their World Economic, Guinigundo said that at worst, experts predict an extended global slowdown lasting up to three years or more.

“In the Philippines we have no recession although our economy is slowing. Nevertheless, we have our buffers or sources of resilience,” he said.

A sound banking system that benefited from an early adoption of structural and policy reforms and foreign exchange reserves twice as large as the three-month international standard and a more bearable debt-to-gross domestic product ratio would be the country’s shield from the crisis, according to Guinigundo.

He said the most vulnerable sectors to the ongoing financial difficulties are those that rely on the external sector for revenues and profits.

“Sectors with external orientation like the business process outsourcing companies, tourism-related firms, the various exporters and those that rely on foreign remittances will be hit,” Guinigundo said.

“The local credit market continues to operate normally” and that “funds are available to those requiring it” based on bank credit growth averaging 17.5 percent as of last survey in December last year, he added.

He added risk aversion, indicated by withdrawal of investments and subsequent flight to safer havens, have “increased” in recent months.

He said opportunites exist for thrift banks during the crisis period.

“On the fiscal front there had been a frontloading of expenditures in the first two months. Thrift banks are in a position to finance some of the public infrastructure activities via the consortium mode perhaps,” Guinigundo said.

He earlier told reporters portfolio funds, more populary known as “hot money,” was more recently assessed to end in another “small net outflow.”

Guinigundo was one of the first central bank officials to come out and say that everything that foreign fund managers could pull out from the Philippines in 2008 had already been pulled out.

This after the BSP reported a net foreign portfolio outflow totaling $1.784 billion last year, a sharp reversal from net inflows reaching $3.519 billion in 2007.

“There could be a small outflow of portfolio funds this year,” he said without much elaboration. – Daily Tribune

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