IMF now sees Philippine economy shrinking by 1%

THE International Monetary Fund expects the economy to contract by 1 percent this year, revising its forecast of a 1-percent growth because of disappointing first-quarter numbers.

The revised forecast came as new figures showed exports falling 35.2 percent in April from a year earlier, with shipments of electronic goods and garments still plummeting amid the global economic downturn.

“On the basis of the first quarter data, it seems that the impact of the global slowdown on the Philippines is stronger than what we have anticipated, and therefore we are revising the numbers downwards,” IMF head of mission Il Houng Lee told a briefing yesterday.

The IMF forecasts inflation to decline to 3.25 percent this year, slightly lower than the central bank’s forecast of 3.4 percent, but sees it rising to 4.25 percent next year when it expects the economy to grow by 2.5 percent.

The IMF sees remittances declining by 4 percent this year, “although it cannot be ruled out that [Filipino workers overseas] could rise to the occasion once again particularly if the global economy recovers faster than anticipated.”

Remittances support consumer spending, but the IMF sees private consumption and external demand remaining weak in the coming quarters.

The New York-based think tank Global Source also scaled down its projections for the country’s gross domestic product, warning that political uncertainty over the administration’s Charter-change initiative could result in a recession.

The think tank said GDP growth this year was likely to range between 0.8 percent and 1.2 percent, down from its earlier forecast of 2.5 percent.

The drop in exports in April marked the seventh consecutive month of year-on-year declines. In March, exports fell 30.9 percent.

Exports in April amounted to $2.802 billion compared with $4.327 billion in the same period last year, the National Statistics Office said.

Total exports for the first four months amounted to $10.727 billion, a 36.4-percent fall from the same period in 2008.

Exports of electronic products, which made up 60 percent of the total in April, fell 33.2 percent to $1.684 billion.

The Semiconductor and Electronics Industries in the Philippines Inc. said in a statement that preliminary figures showed that May exports would be better. But the industry association conceded that for the whole year, exports could contract by 20 to 30 percent.

The United States remained the top buyer of Philippine exports, receiving $447.27 million or 16 percent of the total in April, but this was still 35.3-percent down from last year.

Despite the declining figures, the president of the Philippine Chamber of Commerce and Industry, Edgardo Lacson, said he was optimistic about the economy.

“Exports are still down because worldwide demand has fallen, but we can feel some relief because the US economy appears to have bottomed out,” he said.

Lacson said remittances, a cornerstone of the economy, as well as earnings from call centers and business process outsourcing, were still doing well.

The National Statistical Coordination Board earlier reported that the growth in gross domestic product slackened to 0.4 percent in the first quarter, down from 3.9 percent in the same quarter last year due to the global economic meltdown.

The GDP figure was way below the projected growth of 1.8 percent to 2.8 percent set by the National Economic Development Authority for the first three months of the year.

In its statement, the IMF said the government’s fiscal stimulus provided only modest support as part of the increase in the deficit reflected settlements of accounts payable and revenue erosion.

Lee said the central bank still had some scope to ease interest rates.

“Weaker growth, well anchored inflation expectations, and the outlook for commodity and food prices provide moderate scope for further easing. An exit from the easier monetary policy stance should commence only when the recovery is on a solid footing,” the IMF said. –Eileen A. Mencias with Roderick T. dela Cruz, Lawrence Agcaoili, Bloomberg, AFP