ADB downgrades RP growth forecast

The Asian Development Bank (ADB) on Tuesday downgraded its economic forecast for the Philippines this year, adding that it expected modest growth next year on the assumption of peaceful elections and a smooth transition in government.

“We are maintaining our positive outlook for the Philippines, expecting a growth of 1.6 percent this year and 3.3 percent next year,” Joseph Zveglich Jr., assistant chief economist of ADB’s Economics and Research Development, told reporters during the ADB Outlook 2009 Update.

In the second half of the year, ADB estimated that the economy, as measured by gross domestic product (GDP) would grow 2.2 percent. GDP, a key economic indicator, is the total value of all final goods and services produced in a country in a year.

In the second quarter, the National Statistical Coordination Board (NSCB) reported that the economy grew 1.5 percent, and from January to June, 1 percent.

The ADB’s latest projection of 1.6 percent this year was lower compared to an earlier estimate of 2.5 percent in March. In 2010, the ADB earlier project 3.5 percent.

Consumption slowed down

The Manila-based lender blamed the downgrade this year to the sharper than anticipated slowdown in private consumption in the first half, coupled with a slump in exports and weak investment environment.

“Economic recovery is underway for the Philippines in 2009 and likely to strengthen in 2010, but the fiscal situation is not as strong as other countries in the region,” Zveglich said.

Neeraj Jain, ADB country director for the Philippines, said however, that there were positive factors, such as the steady growth in remittances and business process outsourcing services, stability in domestic financial markets and strength in external liquidity position.

“Recent improvements in business and consumer sentiment are also encouraging,” Jain said.

Private consumption growth in the first half pulled back to 1.8 percent, the ADB said, but it was projected to pick up in the second half of the year.

The National Economic and Development Authority (NEDA) had said that personal consumption expenditure (PCE) was projected to rise in the third and fourth quarters as “fear factor is abating for consumers.”

The personal consumption expenditure contributes about 70 percent to 80 percent of GDP.

Outlook for next year

In 2010, ADB said domestic demand would strengthen, supported by election spending through May and some expected improvement in the labor market resulting from a lift in business sentiment in the second half, on the assumption of a peaceful elections and a smooth transition in government.

“Modest growth in private consumption and election spending will support retail trade and transport and communications services,” the ADB reported.

The bank added that the country’s economic outlook assumes that there would be a smooth political transition in 2010 following national elections in May, and that the new government pursues a credible economic program.

The forecasts also assume that the monetary stance will remain accommodative and gradually tighten in 2010, with the timing depending on inflation and growth trends, the ADB said.

The lender added that a key risk to the 2010 outlook is a weaker-than-anticipated global economic recovery that would hurt exports, foreign investment inflows, and consumer and business sentiment, which while showing early signs of improvement remain fragile.

It added that uncertainties leading up to the elections in May 2010 would likely keep private investment subdued.

The ADB also project inflation to average 3.2 percent this year because domestic demand has been weaker than anticipated. For next year, inflation is projected to reach 4.5 percent.

The bank also said that the fiscal deficit target of 2.8 percent of GDP in 2010 and targeting an increase in tax revenue to 14.3 percent this year “looks ambitious considering the tax breaks and sluggish economic growth.”

The government’s actual tax revenues were around 14 percent in 2007 and 2008.

Asia poised for recovery

Jong-Wha Lee, ADB chief economist said despite worsening conditions in the global economic environment, developing Asia was poised to lead the recovery from the worldwide slowdown.

The ADB projected GDP growth in Indonesia to grow 4.3 percent this year and 5.4 percent next year; Malaysia, minus 3.1 percent and 4.2 percent; Singapore, minus 5 percent and 3.5 percent; Thailand, minus 3.2 percent and 3 percent; and Vietnam, 4.7 percent and 6.5 percent.

“The improved regional outlook should not make developing Asian economies complacent. A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region’s ongoing recovery,” Lee said.

For the Philippines, Jain said withdrawing stimulus package was not recommended because of the existing economic gap.

The NEDA earlier said it would propose P200-billion fresh stimulus package next year to support economic growth.

In January, the government unveiled a P330-billion fiscal stimulus package. About half of that is allotted to labor-intensive infrastructure and social welfare programs, 30 percent to public-private partnerships for building large infrastructure projects, and the rest to tax reductions for individuals and businesses. –Darwin G. Amojelar, Senior Reporter, Manila Times