Bank sees weak RP growth

Officials also eye cutsin economic targets
 
The World Bank on Tuesday downgraded the country’s economic growth this year to 1.9 percent because of weak remittances from overseas Filipino workers (OFWs) that could dampen consumer spending.

And the government is looking to also reduce its economic targets for the year.

“[The] projected real GDP [gross domestic product] growth for 2009 has now been revised to 1.9 percent and prospects for a strong rebound in 2010 have also diminished,” Eric Le Borgne, World Bank senior country economist, told a briefing. “Although the risks to our projections are entitled to the downside, the economy contains significant buffers to avoid a recession.”

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

If realized, the forecast growth rate would be the slowest growth performance by the Philippines since 1998, when the economy contracted by 0.6 percent.

For 2010, Le Borgne projected that the economy as measured by GDP to expand by 2.8 percent. In December, the Washington-based lender projected a GDP of 3 percent.

Other multilateral agencies expect the economy to slow down, with the Asian Development Bank (ADB) projecting a 2.5-percent economic growth, while the International Monetary Fund (IMF) expecting a 2.2 percent rise.

The government projects a GDP growth of between 3.7 percent and 4.4 percent this year.

Manila says it plans to achieve the 4.4 percent rate through massive government spending to take up the slack of reduced economic activity.

Even then, officials are looking to scale back government’s economic targets.

Impact of crisis

Last year, the economy grew 4.6 percent and 7.2 percent in 2007.

Le Borgne said as with the rest of developing East Asia, the Philippines is battling the forces of global recession. “Notwithstanding its relatively good economic and financial fundamentals prior to the onset of the global financial crisis, the crisis in the advanced countries is rapidly being transmitted to the Philippines.”

He added that while the country was relatively “sheltered” from the initial global financial turbulence, it was nevertheless affected.

The World Bank added that a key downside risk lies on how vulnerable remittance inflows are to the global recession.

“Domestic demand, boosted to a large extent by strong remittances since 2001, has been the most important growth driver for the economy,” he said.

Le Borgne said remittances underpin much of the resilience of the economy. “At about 10 percent of GDP, they have been a fairly stable source of income for consumers, foreign exchange, savings and deposits.”

Previous slowdowns have shown remittances to be counter-cyclical in the Philippines, but the global nature and scope of the global recession will diminish this stabilizing effect,” he added.

The World Bank reported that the global slowdown was already taking its toll on the labor market, with the jobless rate rising to 7.7 percent in January with less-skilled workers disproportionately affected and with 120,000 manufacturing jobs already lost amid a sharp drop in exports.

Doing the right things

But the government is doing the right things to confront the crisis, said Bert Hofman, World Bank country director for the Philippines.

He cited the government’s moves to enhance the financial sector’s resiliency, the fiscal stimulus package, accelerated budgetary spending, the increase in conditional cash transfer programs, and assistance to Filipino workers from abroad who return home jobless.

“These are the timely and appropriate responses to the rapidly deteriorating external environment, probably the worst global economic and financial crisis in generations,” he said.

The World Bank recommended the government to be more effective to support demand directly through transfers to households and public investment projects.

“Construction is the sector with the highest potential to offset the decline in manufacturing,” the bank said.

Economic targets

The Philippines is set to revise key economic targets for the second time this year as it tries to deal with volatile economic conditions, key aides to President Gloria Arroyo said also Tuesday.

“They [economic managers] want to be true to their evaluations so that targets being set by them are realistic especially now that we have the global financial crisis,” Executive Secretary Eduardo Ermita told reporters.

But he added that revising the country’s growth projection shouldn’t be seen as a weakening of the economic condition, but as a way of realigning the current condition with the present economic realities.

“We have the economic team and they are continuously evaluating our economic performance, and therefore, they want to be true to their evaluations so that targets are being set by them realistically especially now that we have the global financial crisis,” Ermita said.

“It behooves upon our economic managers especially the BSP [Bangko Sentral ng Pililipinas], NEDA [National Economic Development Authority], DOF [Department of Finance], DTI [Department of Trade and Industry] and DBM [Department of Budget and Management] to take a look and review the figures. So I think it should not be taken as something that is alarming. We are just being more realistic,” he added.

Finance Secretary Margarito Teves also said they are reviewing the country’s economic goals and there is a possibility of lowering it.

The government could lower this year’s growth forecast of 3.7 percent to 4.4 percent, Teves said without giving specifics. The 3.7 percent to 4.4 percent target, set in February, is a reduction from an earlier 3.7-percent to 4.7-percent forecast.

This figure is lower than last year’s 4.6-percent and 7.2-percent in 2007.

There is speculation that Manila would adjust its GDP target as well as the budget deficit ceiling, now set at P178 billion ($3.72 billion), or 2.2 percent of GDP.

The big deficit was meant to allow the government to ramp up spending to take up the slack of reduced economic activity.
— Darwin G. Amojelar, AFP And Angelo S. Samonte, Manila Times