RP pulls narrow escape from recession in 2009

WHILE other Asian emerging economies shrank, the Philippines managed to evade a recession in 2009 amid the worst global slump in decades. But early in the year, the prospects were dim, especially after the government released the first-quarter growth results.

Philippine gross domestic product (GDP) growth dropped to 0.4 percent in the first quarter from 3.9 percent in the same period in 2008. Although the first-quarter figure was revised upward to 0.6 percent, this remained the weakest expansion since the fourth quarter of 1998, when the country contracted by 2.4 percent.

On a seasonally adjusted quarter-to-quarter basis, GDP contracted 2.3 percent, the weakest for the past 20 years.

The minimal growth led the National Statistical Coordination Board (NSCB) to warn that the economy was teetering into recession.

Government officials blamed the worse-than-expected first-quarter figure on the delay in the passage of the national budget, preventing the Economic Resiliency Plan (ERP) to kick on time.

The government had unveiled the P330-billion ERP to pump-prime the economy by quickly disbursing the P1.4-trillion national budget.

Because of the disappointing first quarter growth, the Development and Budget Coordinating Committee was forced to lower its economic targets to a range of 0.8 percent to 1.8 percent.

This was the fourth reduction in the 2009 growth goal after economic managers trimmed the same from the original 6.1 percent to 7.1 percent, to between 3.7 percent and 4.4 percent, and further to 3.1 percent to 4.1 percent.

To stimulate economic growth, Malacañang ordered agencies to spend 60 percent to 80 percent of their budget, with particular focus on infrastructure in the second to third quarters of the year.

By then, the economy registered slightly higher upticks of 0.8 percent supported by government and private spending. The nine-month average of 0.7 percent, however, was still below the low-end official target, leading the NSCB to say that the domestic economy remained “fragile.”

Growth during the period was buoyed by the 1.3 percent rise in agriculture, which accounts for 20 percent of GDP.

The services sectors also contributed to growth, expanding by 2.9 percent. Major growth drivers were trade, finance, and private and government services.

The low inflation of 0.3 percent—compared with the high of 12.2 percent in 2008—as well as improved consumer confidence fueled the growth of retail trade.

However, manufacturing and utilities, which dropped 7.5 percent and 2.3 percent, respectively, dragged the industry sector, which contracted 2.9 percent for the first three quarters, a reversal of the 4.8-percent growth in the same period in 2008.

On the demand side, government spending boosted the economy during the first three quarters, expanding 7.6 percent because of the accelerated release of the budget.

Also contributing to this uptick were government disbursements in preparation for the 2010 elections and the increase in spending for personal services because of salary adjustments.

Personal consumer expenditure grew 3.6 percent in the first three quarters, supported by low inflation and robust inflows of remittances.

Data from the Bangko Sentral ng Pilipinas showed that remittances rose by 4.2 percent to $12.8 billion in the first nine months, bucking earlier forecasts of a contraction.

The country’s economic performance drew praise from global financial institutions like Golman Sachs, which considered the Philippines—along with Brazil, China, India, Egypt and Indonesia—as winners, after exhibiting a mild rebound from the global crisis.

Despite the Philippines’ early resilience, typhoons Ondoy and Pepeng—which hit at the start of the fourth quarter—pushed the international creditor community to downgrade the country’s economic growth forecast yet again.

The National Economic and Development Authority (NEDA) estimated that the two typhoons inflicted damage worth P206 billion.

Nonetheless, the government is confident of hitting the low-end GDP growth target for 2009.

As the Philippines joins emerging Asia to become the first region to rebound from the global slump, creditors like the World Bank and Asian Development Bank forecast faster growth for the country in 2010.

The projections are within the government’s GDP target of between 2.6 percent and 3.6 percent.

Healthy remittances, government spending and the election spending are expecsdted to be the growth drivers for 2010. –DARWIN G. AMOJELAR SENIOR REPORTER, Manila Times