A sharp contraction in Philippine exports caused by the global financial crisis could dampen economic growth this year, according to the United Nations Economic and Social Survey of Asia and the Pacific (Unescap).
In a report titled “Addressing Triple Threats to Development,” the UN agency said that the Philippine economy, as measured by gross domestic product (GDP), is expected to grow by no more than 3 percent this year, which is lower compared to the government’s forecast of between 3.7 percent and 4.9 percent.
GDP refers to the total value of goods and services produced in a country in a year.
Last year, the economy grew by 4.6 percent, compared with the 7.2 percent growth in 2007.
The Unescap blamed the slowdown in GDP growth to the sharp contraction of exports that started in the last quarter of 2008.
The government expects exports to contract by 8 percent to 10 percent this year.
“The slowdown in the GDP growth in the Philippines is a result of a sharp contraction of exports started in the last quarter of 2008—a consequence of the country’s linkages to global supply chains in the electronic industry, which have been badly hit by the recession in the United States and other industrialized countries,” Unescap said.
“The export sector is expected to be hardest hit by the shrinkage of import demand, so economic prospects in the region hinge more on domestic demand, but investment and consumer confidence has been shaken by more entrenched economic difficulties, poor expectations of corporate profits, a slowdown in remittances and mounting concerns about job security and household income,” Unescap added.
Dennis Arroyo, the director of National Economic and Development Authority’s planning and policy staff, said that the government is looking at 3.7 percent to 4.9 percent GDP growth this year.
He added that the government needs to spend more to stimulate confidence and that the early spending of political candidates ahead of the 2010 elections would help to boost the economy this year.
But Unescap said that there still is a bright spot in the country’s gloomy economic picture, which is the increase in money sent home by overseas Filipino workers (OFWs).
In 2008, OFW remittances amounted to $16.4 billion, which is 13.7 percent higher than that of 2007. The growth in remittances, however, contracted by 0.1 percent in January 2009 compared to the same period last year, reflecting the impact of the recession on immigrant workers in the US.
While the government is allotting P330 billion for a stimulus package to boost the economy, Unescap said fiscal resources are limited and increases in budget deficits will eventually need to be addressed.
The country’s stimulus package is about 4.6 percent of GDP, which is aimed at upgrading infrastructure, providing seed funding for small enterprises, boosting social protection and creating jobs.
The report, a flagship publication of the UN’s regional arm, analyzes the three global crises which have converged to threaten development in the Asia-Pacific region—the economic crisis, fuel and food price volatility and climate change. It also provides a regional perspective as well as country-specific analyses, outlining ways in which economies in the region can move forward in unison toward a more inclusive and sustainable development path.
In the report, the UN warned that what the Philippines is showing mere resilience, not resistance, from the mentioned threats.
It also urged the government to undertake policies that promote the long-term sustainability of the energy and food markets, as well as spending that addresses the deficiencies of current social protection systems which will also help support domestic demand in the short term.
Celia Reyes of Angelo King Institute for Economic and Business Studies also cautioned the government that the decrease in food and fuel prices does not necessarily mean that everything will be under control, at least in the case of the Philippines.
“Those who have stable jobs, like those working for the government, will have more to spend naturally [because of the lower prices], but what about overseas Filipino workers whose jobs are now at risk because of lesser demands of products and manpower abroad,” Reyes said.
During the survey’s earlier launch in Bangkok, the UN Undersecretary-General and Executive Secretary of Unescap, Noeleen Heyzer, called for more intra-regional trade and investment by accelerating the implementation of regional economic cooperation agreements, saying that the Asia-Pacific region is more economically integrated with the rest of the world then with itself.
“Intraregional trade among developing countries accounts for only 37 percent of exports in our region, compared with NAFTA [North American Free Trade Agreement] at 51 percent and the EU [European Union] at 68 percent,” Heyzer noted.
“By strengthening our domestic markets, the region can provide a buffer to global market fluctuations and move from being crisis resilient to crisis resistant. A key component in this will be how governments use fiscal policy as a tool of development,” she said.
Crisis of governance, corruption
Social Watch Philippines lead convenor and University of the Philippines professor Leonor Briones said the country was already dealing with its own crisis even before the international financial crisis happened.
“Even before the 2008 financial crisis, we have already our own social crisis,” Briones said during an interview also on Thursday.
“The problem with us is that nobody really talks about the financial crisis. Everybody is preoccupied with the 2010 [elections] and Charter change,” she added, citing newspaper headlines.
Briones also urged the government to simultaneously address issues of corruption and lack of confidence as these issues could be a potential recipe for a political crisis in the coming years.
“We have the crisis in governance, lack of confidence, moral crisis and the rising corruption index but the problem is everybody has cynicism crisis,” she said.
Briones added that these factors confounded the government’s effort to immediately solve the fiscal crisis and prevent the further dislocation of people from the crisis, especially among the poor.
She said that despite the “rosy announcements” that the country is an island of calm and serenity, the Philippines is actually faced with greater difficulties and warning signs are evident as early as 2006. These signs, she added, included rising poverty, malnutrition and infant-mortality rates.
Briones stressed that the principle of morality and accountability should be placed side by side with solving the economic problems.
— Darwin G. Amojelar, Llanesca T. Panti And James Konstantin Galvez, Manila Times