RP defies bleak outlook to keep recession at bay

Many predicted a grim future for the export-dependent Philippines as the global slump hit world trade, but recent data suggest it could avoid recession, as the government remains defiant.

The archipelago nation has talked up its resilience, while bodies such as the World Bank and International Monetary Fund (IMF) see the Asian nation’s economy contracting this year.

They cite an expected downturn in remittances from Filipinos working abroad and a continuing fall in overseas shipments.

Last year the economy posted 4.6-percent growth, markedly down from 2007’s roaring three-decade high of 7-percent expansion.

And the first quarter of this year saw growth fall to just 0.4 percent as sales of key exports to major markets in the United States and Europe evaporated.

Electronics products and components, which make up almost 60 percent of Philippine exports, dropped 34.5 percent year-on-year in the first five months of 2009 although the government says the downturn is halting.

Falling revenues and higher stimulus spending also caused the Philippines’ budget deficit to rocket to P153.4 billion, a 752.2-percent rise from the same period last year.

The government also expects to resort to more foreign borrowing to finance its economic stimulus while still keeping the budget deficit within its ceiling of P250 billion.

Spared so far

However, while the world’s leading economies were battered by the global meltdown, the Philippines economy has so far managed to avoid technical recession, seen as two consecutive quarters of negative growth.

And contrary to the grim warnings of the IMF and World Bank, remittances from the eight million overseas workers have risen this year.

Latest figures, released in May, show money sent back during the month rose 3.7 percent year-on-year to a record $1.48 billion.

For the first five months, workers sent back $6.98 billion, a 2.8-percent rise on the year before.

The Philippine Labor department has forecast remittances—long the cornerstone of the economy—to exceed $17 billion this year, which would be a 3.6-percent increase from 2008.

Many good signs

“There are a lot of good signs regarding the resiliency of the Philippine economy,” said Press Secretary Cerge Remonde at a recent economic briefing in the Philippine capital.

“Remittances were expected to go down but instead they have not only held steady but reached record highs.”

Even exports have shown signs of bottoming out while inflation has also slowed, he added. July inflation was 0.2 percent, a 22-year low, data showed earlier this week.

Remonde said bank loans and the retail trade sector were both up in May and that he expected economic activity to accelerate as candidates for the national polls next year start spending.

With thousands of people running for hundreds of posts from local government to president, spending for elections will likely be heavy. Sen. Manuel Villar Jr., a tycoon and presidential candidate, has said that one must spend at least P1 billion ($20.9 million) just to run for president.

In her annual State of the Nation Address to Congress on July 27, a beaming President Gloria Arroyo said recent reforms had fortified the economy.

She said policies such as increasing value-added tax (VAT) from 10 percent to 12 percent had brought necessary fiscal and monetary stability, allowing the country to weather the storm.

She also pointed out that international credit rating agency Moody’s had upgraded the country’s foreign and local currency ratings to “stable” from negative.

Moody’s said “the relatively high degree of resiliency exhibited by the country’s financial system and external payments position” was behind this upgrade.

Officials had originally faced the global economic turmoil with confidence that the country would be one of the few that would avoid a recession in 2009.

But the first quarter GDP figures highlighted the problem of exports plunging while large factories announced huge layoffs.

Nevertheless, government analysts reject predictions of negative growth despite downwardly revising a 3.1-percent to 4.1-percent growth forecast for 2009 to only 0.8 percent to 1.8 percent in June.

‘Prophet of Boom’

Economics professor Bernardo Villegas of the Manila-based University of Asia and the Pacific is even more optimistic, saying GDP will grow by at least 2.5 percent this year.

“The World Bank and the IMF are absolutely wrong about the remittances. They assumed that because overseas remittances to other countries had fallen, they would fall in the Philippines as well,” he told Agence France-Presse.

He said remittances have remained resilient because Filipino overseas workers are in higher, more skilled positions and are therefore less disposable than other foreign workers.

Other sectors such as the booming outsourcing industry, domestic tourism and even agriculture are still doing well, he added.

Luz Lorenzo of ATR-Kim Eng Securities forecasts 2-percent growth for 2009, citing government spending, increased private consumption, remittances and looser monetary controls.

Critics of President Gloria Arroyo charge that the country’s economic strength is still overly dependent on overseas workers while investment remains sparse and over a quarter of the population live in poverty.

But Lorenzo said: “we must be doing something right if a credit rating agency upgrades us in the middle of a global economic crisis.”  –Mynardo Macaraig, Agence France-Presse