S&P sees RP growth at high-end of govt target

STANDARD and Poor’s (S&P) said Philippine economic growth will hit the high-end of the government’s target range for this year and next year. Despite this, the credit rating agency said the Bangko Sentral ng Pilipinas (BSP) would hold onto current interest rate settings amid expectations of weak exports until 2010.

In its latest report, S&P said the Philippines’ gross domestic product (GDP) would grow by 1.8 percent this year, before accelerating to 3.6 percent next year.

Both represent the high-end of the government’s growth targets for 2009 and 2010.

An indicator of economic performance, GDP is the amount of final goods and services produced in the country.

“Gradual global recovery will provide an additional boost in second-half 2009 and during 2010, but the region will also face the challenge of offsetting slow external demand by creating enough domestic demand for local goods,” Subir Gokarn, S&P Asia-Pacific chief economist, said in the report titled, The ASEAN Region: It’s A Case Of Slow But Steady Improvement.

S&P’s forecast is broadly in line with recent estimates by the private sector, many of which expect the Philippines to exceed official targets this year due to the improvement in the second-quarter GDP of 1.5 percent from 0.6 percent in the first quarter. The second-quarter figure results in an average GDP growth of 1 percent in the first six months of this year.

“Intra-regional trade will remain central to revival,” Gokarn said.
“The Asean’s recovery will be determined both by China’s demand for commodities and other goods and by finding the correct balance between monetary and fiscal policies.”

China’s domestic investment and consumption has showed signs of reviving, given increased appetite for food, minerals, metals and other commodities, consumer goods as well as parts and components sourced from Asia, thus partly supporting the revival in economic activity among member-economies of the Association of Southeast Asian Nations.

“While it is clear that the region’s economic downturn has bottomed out, a too-early withdrawal of fiscal or monetary support could jolt the steady pace of recovery,” Gokarn, however, said.

The S&P economis said the implementation of previous fiscal packages and the transmission of previous policy rate cuts will continue to support economic recovery.

He said central banks in the region are expected to hike rates in the second half next year as further easing could overheat and jolt the economic recovery process.

The Monetary Board, the policy making body of the BSP is set to meet on Thursday on interest rates. The BSP had cut its benchmark rates by 200 basis points since December last year before taking a pause from its monetary easing cycle last month.

“The Philippines and Indonesia are also unlikely to introduce further cuts. The global slowdown saw investments and total exports decline significantly in first-half 2009 but fiscal support propped up consumption and, in part, capital spending,” Gokarn said.

Governments in the region introduced fiscal stimulus packages that included a mix of personal and corporate tax incentives, direct stimulus to certain sectors, and hikes in public administration salaries. They also introduced measures targeting physical and social infrastructure, tax exemptions for corporates and low-income earners, rural development, duty waivers and subsidies.

The Philippine government has abandoned its fiscal consolidation program next year, and moved the same to 2013 due to increased spending on infrastructure and social services. The government has programmed a fiscal deficit of P250 billion, or 3.2 percent of GDP this year. At end-August, its budget gap already balooned to P210 billion.

Among the five Asean developing economies, S&P said Vietnam will outperform the region with 5 percent growth this year and 6.6 percent next year. Indonesia will continue to show steady improvement of 4.4 percent and 5.5 percent this year and next year, respectively. –Maricel E. Burgonio, Senior Reporter, Manila Times