ADB cuts growth outlook

RP not alone, as bank halves Asia forecasts

The Asian Development Bank (ADB) on Tuesday further slashed the country’s economic growth forecast this year, because of weak consumer spending and investment caused by the global financial crisis.

And the Philippines is not alone, though, as the bank also reported that Asia’s growth forecast would be halved in 2009.

The Manila-based lender said the Philippine economy as measured by gross domestic product (GDP) is likely to grow 2.5 percent. That is down from its forecast of 4.7 percent in September 2009 and from 6.2 percent in March last year.

A proxy for economic output, GDP measures the amount of goods and services produced locally.

The government targets a GDP growth of between 3.7 percent and 4.4 percent this year. Last year the economy expanded 4.6 percent, 7.2 percent in 2007.

ADB’s projections assume that fiscal and monetary policies remain accommodative, and that there is limited adverse impact on investor sentiment arising from the national and local elections in May 2010.

“The outlook is for a further deceleration in economic growth in 2009, as global demand weakens for both exports and workers from the Philippines, damping consumption and investment,” the ADB said.

Better than neighbors

The Philippines was not immune to the global economic crisis, Thomas Crouch, ADB deputy director general for Southeast Asia said in a briefing.

But he added that the country is “relatively well placed to weather the crisis.”

The ADB said domestic consumption is projected to grow 3 percent, as remittances from OFWs would likely flatten in US dollar terms resulting from weaker labor markets worldwide.

“The domestic labor market is waning as export industries, among others, trim headcounts, alongside the prospect of an influx of unemployed overseas workers,” the ADB said.

The National Economic and Development Authority (NEDA) earlier projected that about 800,000 workers at home and abroad are vulnerable to losing their jobs this year.

For next year, the Asian Development Bank sees GDP to pick up to 3.5 percent, still lower compared with the 4.9 percent to 5.8 percent GDP growth target.

The bank added that the domestic and foreign private investments are expected to remain sluggish this year because of the weak demand for exports and the global credit squeeze.

“Industry will be hurt this year by depressed demand for manufactured exports, and private construction by weaker growth in incomes and flattening remittance inflows,” the ADB explained.

Inflation and deficit

The bank said inflation is projected to grow 4.5 percent on average in 2009 because of the economic slowdown and lower prices for imported oil and food. This was within the government’s forecast of between 3.5 percent and 5.5 percent.

From January to February this year, inflation averaged 7.2 percent.

With fiscal spending expected to rise substantially, the budget deficit could widen to about 2.5 percent of GDP.

The ADB said there is a need to intensify revenue-sharing efforts to support their higher planned spending.

Jong-Wha Lee, ADB’s acting chief economist, said, “Further increases in revenue as a share of GDP and reductions in debt would not only reduce vulnerabilities, but also build the fiscal resources required for development spending on infrastructure and on social programs.”

Crouch, meanwhile, said the ADB is not concerned about government’s target. “We consider that targeting 2.5 percent of GDP is OK and can be managed in the short term, particularly because of the good work that has already been done on improving debt borrowing.”

The deficit-to-GDP ratio is a closely monitored measure of how long a government can incur revenue collection shortfalls.

“There’s nothing intrinsically meritorious to balance the budget, there are times when you need to spend,” Crouch said.

The inter-agency Development and Budget Coordinating Committee sees a funding gap of 1.5 percent of GDP next year—1 percent for 2011 and 0.5 percent in 2012.

Growth forecast for Asia

Growth in Asia’s developing nations would almost halve this year, the ADB predicted also Tuesday.

The ADB said Asia’s developing economies would expand by just 3.4 percent in 2009, down from the 6.3 percent seen last year and 9.5 percent in 2007.

The slowdown would mean more than 60 million people in the region would remain mired in poverty, the bank said in its annual Asian Development Outlook.

“The short-term outlook for the region is bleak as the full impact of the severe recession in industrialized economies is transmitted to emerging markets,” ADB’s Lee said.

But the bank predicted an expansion of 6 percent in 2010.

China to grow slower

The report added that China, the major driver of the region’s growth in the past decade, would expand by 7 percent this year, below Beijing’s target of 8 percent seen as the minimum required to prevent mass unemployment.

The report looks at the prospects for 44 jurisdictions stretching from the former Soviet states of Central Asia to some of the tiny Pacific islands. It excludes developed countries, such as Japan, Australia and New Zealand.

Several of the region’s most export-dependent economies, including Hong Kong, Taiwan, South Korea, Malaysia, Singapore and Thailand, would contract in 2009, the report said.

Jobless in Japan

In Japan, the world’s second-largest economy, officials released figures showing unemployment hit 4.4 percent in February, matching a high last seen in January 2006.

Tokyo said the figures showed there were only 59 available jobs for every 100 jobseekers.

At the same time the government said consumer spending fell 3.5 percent month-to-month as the economic powerhouse heads for its worst recession since World War II.

“There is no good news in those data,” said JP Morgan senior economist Masamichi Adachi.

Japan’s heavily export-dependent economy shrank at an annualized pace of 12.1 percent in the last quarter of 2008, as the downturn has dried up demand for its cars, high-tech goods and other popular exports.

Major manufacturers have cut back on production and slashed tens of thousands of jobs since the crisis began. Exports in February dropped nearly 50 percent year-on-year.

Japanese Prime Minister Taro Aso was set to outline plans for a new stimulus package worth 10 trillion yen ($102 billion)—Japan’s fourth since October—before he leaves for the G20 summit in London.

World leaders are to meet on Thursday in London where they will try to forge a plan to ease economies out of the financial crisis.

South Korea stumbles

South Korea said Tuesday that industrial output fell 10.3 percent in February as the downturn continues to hit the trade-dependent economy.

The monthly figure follows a record decline in January and comes as indicators suggest Asia’s fourth largest economy is heading for its first recession in 11 years.
— Darwin G. Amojelar And AFP