RP in mild recession–Recto

Diokno, Salceda says 2nd quarter may get worse
 
The National Economic and Development Authority (NEDA) on Monday described the worse-than-expected first quarter economic growth results as “a mild recession.”

“You can call it [first quarter economic growth] a mild recession with mild growth. It’s almost flat,” Socioeconomic Planning Secretary Ralph Recto told reporters.

The National Statistical Coordination Board (NSCB) earlier reported that the economy, as measured by gross domestic product (GDP) grew by only 0.4 percent in the first quarter of the year from 3.9 percent in the same period last year.

A proxy for economic output, GDP is the amount of goods and services produced in a country.

The first-quarter GDP was the weakest since the fourth quarter of 1998, when the economy contracted by 2.4 percent.

On a seasonally adjusted quarter-to-quarter basis, the economy contracted by 2.3 percent, the lowest in 20 years.

But Recto said there was a possibility that the 0.4-percent GDP growth in the first quarter could be revised later on with a better number.

For the full year, Recto said the Development Budget and Coordinating Committee (DBCC) was set to revise downward the economic growth target this year of between 3.1 percent and 4.1 percent. “But, there’s no possibility of a contraction [in the economic growth target for 2009].”

When officials released the first-quarter growth performance in late May, Recto said he did not believe that the Philippines would slip into recession, even as he was contradicted by a subordinate.

Also on Monday, Gov. Joey Salceda of Albay predicted that the Philippines would enter a mild recession in the second quarter, according to a report posted on the website of the television network ABS-CBN. Salceda advises President Gloria Arroyo on economic matters.

“We are experiencing significant downturn that will reach the next quarter,” he told ANC, the cable channel of ABS-CBN. “My estimate is that, even including 60-percent increase in public construction, 1.4 percent in services, 2 percent in agriculture on the supply side, we will only reach 0.92 percent [GDP growth] in the second quarter.”

“Theoretically, in the Philippine definition of a recession, we will enter a recession.”

Contraction mode

Benjamin Diokno, economics professor at the University of the Philippines and Budget secretary under then-President Joseph Estrada, told The Manila Times that the economy was on a “contraction mode.”

He added that the second-quarter growth would be even “worse.”

The UP professor said the economy has gone down into negative territory, noting that the per capita GDP declined by 1.5 percent and personal consumption expenditure by 1.1 percent.

Romulo Virola, secretary-general of the statistical board, had said the Philippine economy was teetering on recession, as the leading economic indicators from April to June breached the negative territory confirming the “all too real threat to a recession.”

Virola said the indicators posted a negative 0.195 in the second quarter from a revised positive 0.045 in the first quarter.

The leading economic indicators serve as a basis for short-term forecasting of macroeconomic activity, as they incorporate the behavior of indicators that consistently move upward or downward before the actual expansion or contraction of the economy.

Meanwhile, Recto said that if Congress would amend the economic provisions of the Constitution, it should allow the liberalization of land ownership.

“Why not possibly start with reclamation,” he asked. “Realistically you cannot change overnight from one extreme to the others.”

Earlier, Recto warned that amending the Constitution might cause the economy to contract.

“What concerns me from where I sit in NEDA are the impacts of such political discussions on the economy,” he said.

“Gross domestic product barely posted growth of 0.4 percent in the first quarter. A key drag on growth was the 0.8 percent growth in personal consumption and the 16.5-percent contraction in capital formation. These are directly linked to public sentiment. Simply put, an anxious outlook results in timid consumption and investment spending,” Recto added. –Darwin G. Amojelar, Senior Reporter, Manila Times