Country can weather global economic crisis

IMPROVED fiscal situation will allow Southeast Asian economies, particularly the Philippines, to weather the global economic downturn and turbulence, according to the Bank of America (BofA) Merrill Lynch.

In a report, the American investment bank said that the region’s macro fundamentals have improved in the last five years, citing higher foreign reserves and falling foreign currency debt.

For the Philippines, in particular, BofA Merrill Lynch took notice of the country’s improving resilience indicators.

“Only foreign public debt [27.2 percent of gross domestic product] and fiscal deficit (3.7 percent of the gross domestic product, or GDP] looks comparatively higher within Southeast Asia, but they remain at levels that are relatively low by international standards,” the report said.

“Remittances have proven to be relatively steady even during global downturns, providing an important stabilizing force,” it added.

Merrill Lynch assigned a 50-percent probability that the country’s baseline expansion may be at 4.4 percent.

The country’s GDP may grow by as much as 5.2 percent in a “bull case” scenario, which it said has a 10-percent likelihood, premised on the idea that the European crisis may be contained and the United States continues with its recovery.

In a bear case scenario of a deep recession in Europe and a double-dip recession in the US, the Philippines’ growth has a 40-percent likelihood that it will slow down to 3.7 percent.

Asia will see a much bigger negative shock if the bear case materializes with the Singapore and Malaysian economies contracting by 3 percent and 1 percent, respectively. Thailand will come close to a standstill of 1.5 percent.

“Indonesia [which will grow by 4.5 percent] and Philippines will slow significantly, but avoid a recession,” the report stated.

Global growth will slow down to 3.5 percent this year from around 4 percent in 2011, Victoria Ip, managing director of Merrill Lynch (Asia Pacific) Ltd., said in a briefing.

Eurozone crisis

Europe is expected to have a “shallow recession” of close to 1 percent with emerging markets, which are seen to expand two or three times more than developed economies, accounting for most of the global growth.

“The European debt situation does not get addressed sooner, then this overbearing slowdown of banks will have very direct and long-term implications on economy,” Ip said.

BofA Merrill Lynch official sees global central banks easing monetary policies more aggressively this year, benefiting equities and bonds especially in Asia in the latter part of the year.

Ip advised investors to focus on sectors that are considered immune to headwinds in the macroeconomic environment, such as utilities, energy and telecommunications.

Encouraging data from the US and expectations of a local policy rate cut have fueled a rally in the Philippine Stock Exchange index, which hit record levels twice this week. Concerns from Europe have been brushed aside, but the storm is not yet over, she said.

“The interbank funding level in Europe and the Italian bond yields will be the final things I will be looking at to see that the stress in the system has finally abated,” Ip said.

As the euro weakens given the debt situation, the US dollar may strengthen at the start of 2012 before weakening in the latter part of the year.

“Our projection is that foreign exchange currencies will weaken at the start and gradually regain ground at the end of the year because of the third round of quantitative easing in the US,” she added. -KRISTA ANGELA M. MONTEALEGRE REPORTER, Manila Times