RP not doing enough to offset crisis – S&P

MANILA, Philippines – Even the combination of monetary easing and fiscal stimulus would not be enough to fully offset the impact of a slowing global demand and declining remittances, international ratings agency Standard & Poor’s Rating said yesterday.

After its review, S&P revised its growth projection for the Philippines to 1.5 to two percent this year, downgrading its February estimate that gross domestic product (GDP) would grow by 2.2 percent this year.

S&P said in its second quarter Asia Pacific Economic Outlook that with the threat of inflation waning, monetary policies in the Philippines would continue to support growth in 2009 but the negative impact of declining exports and remittances would be too strong.

S&P said the Philippines’ economy grew by 4.5 percent in the fourth quarter of 2008—higher than expected but slower than previous growth rates as a result of the fall in investments.

Moreover, S&P said the government’s limited fiscal ability to implement projects could have also had a negative impact on consumption and investment.

But S&P said that at least in 2008, high-priced commodity exports partly buffered slower domestic demand.

But in 2009, S&P said a sharp drop in demand for electronic goods and commodities will weaken growth.

Although the flow of remittances and the fiscal package introduced by the government last year would bolster domestic consumption, S&P said this would hardly arrest the impact of global slowdown and lower investment inflows.

“This will mean a weaker 2009, before a considerable revival in 2010,” S&P said.

But the positive side-effect of the low-growth scenario, according to S&P, would be lower inflation which continued to decline after peaking at 12.2 percent in the third quarter of 2008.

“Falls in utility and food costs will warrant a significant drop in inflation this year,” S&P said. “This will give the central bank more room to ease monetary policy in favor of growth.”

The Bangko Sentral ng Pilipinas (BSP) has so far cut its overnight rates by 150 basis points since December last year and monetary officials said this would not be the end of the easing cycle as long as there was room to cut rates.

The momentum, however, is not in favor of growth as the trade deficit doubled in 2008 to $7 billion as exports grew at a mere 1.9 percent, compared with 9.7-percent growth in imports. –Des Ferriols, Philippine Star