PHL economic team counts cost of US woes

PHILIPPINE economic managers on Monday warned that the domestic economy, particularly exports and remittances would slow following Standard & Poor’s downgrade in the US’ credit rating.

In a presentation before the Senate, Socioeconomic Planning Secretary Cayetano Paderanga Jr. said initial simulations made by the National Economic and Development Authority showed a 0.1-percent reduction in gross domestic product and 0.4-percent decline in exports.

Philippine GDP is projected to grow by 5 percent, while exports are projected to rise from 9 percent to 11 percent this year, with the US accounting for 17 percent of Manila’s overseas market.

“These are all preliminary and we still have to look further into the numbers. Exports would be hit by the downgrade, as the US is one of our major markets. We need to look for new markets,” Paderanga said.

The Bangko Sentral ng Pilipinas concurred, saying that foreign exchange inflows would slow if investors remain risk averse.

“We will be affected if the US starts shrinking. Our export, remittance and other external transaction will be affected,” BSP Deputy Governor Diwa Guinigundo told reporters in a separate briefing.

In a statement, S&P on Monday said there is no immediate impact on Asia-Pacific corporate, financial institution, project finance, or structured finance ratings resulting from the lowering of the US’ debt score.

However, the US rating change, together with the weakening sovereign creditworthiness in Europe, point to dampened market sentiment, potentially higher funding costs in offshore markets, and a reduction or reversal of capital flows, the rating agency said.

According to S&P, mitigating factors for the region include a still-positive economic growth outlook for Asia Pacific, together with generally strong domestic saving rates and healthy household and corporate sectors.

“But what we are hoping for is that the market will be more discerning and that they will realize that some emerging markets, including the Philippines, continue to be very resilient and macroeconomic fundamentals remain to be sound and stable,” Guinigundo said.

The BSP official said the country’s remittance-led consumption expenditure accounts for nearly 70 percent of gross domestic product.

“During the three years of the Asian financial crisis we did not see a decline in the growth of remittances but at the worst there was zero growth. And so consumer expenditures, while affected, continue to be the driver of economic growth in the last three years,” Guinigundo said.

Remittances coursed through banks reached $7.9 billion in the first five months of this year, up 6.2 percent from $7.4 billion last year. In May alone, remittances rose by 6.9 percent to reach $1.7 billion, the second highest level since December 2010 when $1.69 billion was sent home by Filipinos working abroad.

Department of Budget and Management Secretary Florencio Abad said the Development and Budget Coordinating Committee is holding on to its existing economic targets pending fresh data.

“There is a slack that can be filled up in the domestic economy that could act as buffer against the adverse impact of the US credit downgrade exacerbated by the eurozone debt crisis,” Abad said during the Senate hearing on the national budget.

Finance Secretary Cesar Purisima told the Senate panel that it is too early to assess the possible impact of the downgrade on the local economy.

“This was the first time the US had a credit downgrade since 1917 and it would take time to determine how it is going to affect the Philippine economy,” he said.

In a commentary, Barclays Capital Research adjusted downwards its outlook on the Philippines’ fiscal deficit to P250 billion from P275 billion, both below the government’s P300 billion ceiling.

“We believe it is crucial for the government to raise capital disbursal, especially in infrastructure to lay the foundations for higher potential GDP growth,” Barclays Research said.

“While we believe that capital disbursals will likely pick up in the second half relative to the first semester of the year, the administration’s cautious nature implies the [increase in] pace most likely will not be that sharp,” it said, adding that the public-private partnership program is unlikely to accelerate this year. –Katrina Mennen A. Valdez and Lailany P. Gomez Reporters, Manila Times