THE Asian Development Bank has lowered its growth forecast for the Philippines to 2.5 percent from 4.7 percent this year as the global economy continues to deteriorate.
“The Philippines is not immune from the negative impact of the global crisis,” said Tom Crouch, deputy director general of the bank’s Southeast Asia Department, at a briefing on its Asian Development Outlook 2009 report yesterday.
The Philippine economy grew 4.6 percent in 2008 and 7.2 percent in 2007. For 2010, the bank said, economic growth would recover slightly to 3.5 percent, assuming that the global economy and trade picked up late next year.
Crouch said the government’s P330-billion stimulus package would help ease the impact of the global crisis on the domestic economy.
“By and large, the Philippines has done the right things in the past and is doing the right things now,” Crouch said.
A simulation run by the bank showed that the P330-billion package, representing 4.1 percent of the country’s gross domestic product, would improve the economy by 2.4 percent in 2009 and 3.5 percent in 2010.
Crouch said remittances, which account for more than a tenth of the GDP, would continue to support growth but would soften this year.
He said the collapse in global trade had hurt the shipping industry, which employs thousands of Filipino seafarers.
“Similar to other countries in Southeast Asia, the near-term challenges for the Philippines are twofold: safeguarding the achievements of recent years—among them stronger growth momentum and progress in fiscal management—and protecting the most vulnerable groups in society at risk during the slowdown,” said the bank’s acting chief economist Jong-Wha Lee.
Domestic consumption in the Philippines is projected to grow by only 3 percent as remittances from Filipino workers stagnate in US dollar terms on the back of a weak global labor market.
The bank said domestic and foreign private investment was expected to remain sluggish because of the weak demand for exports and the global credit squeeze.
Public spending on infrastructure and social welfare projects was expected to pick up the slack in economic activities, supported by the government’s economic stimulus package.
As a result, fiscal spending is projected to rise substantially, with the budget deficit widening to about 2.5 percent of GDP. The report warns that further fiscal slippage beyond this level could unsettle financial markets and rating agencies, raising borrowing costs for the country.
Average inflation is expected to settle at 4.5 percent this year, from an average of 9.3 percent in 2008, as a result of the economic slowdown and lower prices for imported oil and food. This could pave the way for further easing in monetary policy to support growth, the bank said.
The bank cautioned against delays to the economic stimulus package and the inability of some agencies to carry out projects under the government program.
Economic growth in Asia would slow in 2009 to 3.4 percent, its most sluggish pace since the Asian financial crisis in 1997 and 1998. The region’s economy grew 6.3 percent in 2008 and 9.5 percent in 2007.
“If the global economy experiences a mild recovery next year, the outlook for the region will improve to 6 percent in 2010,” the bank said.
“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,” said Jong-Wha Lee.
The World Bank said GDP growth in the developing world would slow to 2.1 percent in 2009 from 5.8 percent in 2008.
The World Bank has more than halved its November 2008 projection of 4.4-percent growth in developing countries in 2009, reflecting the rapid deterioration of global financial and economic conditions.
The new Global Economic Prospects update also said that global growth was expected to contract by 1.7 percent this year. This would be the first decline in world output since World War II.
GDP is projected to decline by 3 percent in the most industrialized countries.–Roderick T. dela Cruz, Manila Standard Today