Growth could slow to 5.8%

PHILIPPINE economic growth could slow to 5.8% this year, Moody’s Analytics yesterday said, in line with projected sluggishness in other Asia-Pacific countries as downside risks within and outside the region persist.

In a report titled “Asia-Pacific Outlook: A Slow Start to the Year,” Moody’s Analytics senior economist Glenn Levine said economies across Asia likely slowed in the first quarter, which could pull down full-year growth.

“The Lunar New Year fog across Asia has begun to lift and the first half of 2014 is not looking as good as it did. First quarter growth appears likely to underperform as weaker demand, both within the region and externally, weighs on production,” Mr. Levine said.

“Monthly trade data from Korea, Taiwan and China provide an early regional barometer — China as a source of demand and Korea and Taiwan as a gauge of global manufacturing,” he added.

“Combining January and February figures to remove Lunar New Year distortions, it is becoming clearer that GDP (gross domestic product) growth in the first quarter will be weaker than in the final three months of 2013.”

The report said GDP growth in the region “will be below potential, particularly if the first quarter undershoots, but we expect growth to accelerate in the third quarter, nearing potential rates in most of the region by year’s end”.

“Our forecast is for regional growth near 5% in the second half of 2014, compared with a bit above 4% in the opening half, with most economies at potential in 2015,” Mr. Levine noted.

While the report did not provide country-specific forecasts, Mr. Levine, in an email, said 2014 Philippine growth was seen at 5.8%. This is higher than Moody’s Analytics’ earlier forecast of 5.4%, made as of Jan. 22 or before the announcement of the Philippines’ full-year GDP results on Jan. 30.

“After the typhoon, when the fourth quarter numbers came out, we revised it up a little,” Mr. Levine said.

He noted, however, that this new projection was still below the country’s “potential growth,” which he placed at 6.5%.

“The government was a big driver of the economy in 2013. I’m not sure that will continue at the same pace this year. The [midterm] electoral cycle was important. Last year, government spending growth was astronomical … We wouldn’t expect that continue at that pace indefinitely,” the economist said.

The Philippine economy expanded by 7.2% last year, topping a 6-7% target. This year, the government sees growth between 6.5-7.5%.

Amid a projected region-wide slowdown, inflation will likely also rise across the Asia-Pacific, Mr. Levine noted in the report.

“Inflation has been a non-issue across Asia since the global financial crisis, with prices rising in most economies at well below-target rates,” he said.

He noted, however, that even as China’s inflation fell to 2% in February in line with weak growth, this was expected to shift in 2014. In Korea, meanwhile, CPI inflation is running at 1% but is expected to rise above 2% by year’s end and toward 3% in 2015.

“This is entirely a demand story. The price of intermediate and primary inputs, including oil and other hard commodities, has been falling recently, with the latter driven largely by concerns about Chinese commodity demand. Soft commodity prices have risen in the new year but are low compared with previous years,” he said.

“The rise in inflation later in 2014 will prompt some central banks to tighten monetary policy. In March, the Reserve Bank of New Zealand enacted the first recent rate hike among developed-world central banks; those in Australia, Korea, Malaysia, Taiwan and the Philippines will follow later this year and into 2015.”

Rising rates, he said, will offset some of the capital outflows triggered by the US Federal Reserve’s moves to unwind its monetary stimulus, so most regional Asian currencies should finish the year only slightly weaker.

“Not all of Asia’s central banks are at the same point in their monetary policy cycles, however. Thailand’s central bank cut interest rates again in March, as the economy has slowed in line with Thailand’s political problems,” Mr. Levine said.

“India and Indonesia raised interest rates to help finance large current account deficits and support their currencies. These moves have been largely successful-both the rupee and rupiah have been steady since October-but come at the expense of weaker domestic demand. India and Indonesia are growing below capacity.”

Philippine inflation eased to 4.1% from January’s 4.2%, at the higher end of the 3-5% target range for the year. The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 4.3% this year.

The Monetary Board is scheduled to meet on March 27. During a policy meeting last Feb. 6, the Board kept the central bank’s overnight borrowing and lending rates at 3.5% and 5.5%, respectively.

The BSP’s key rates have been at these levels since October 2012. Rates on all special deposit account maturities, meanwhile, have also been maintained at a uniform 2% since June 2013. — Bettina Faye V. Roc, Businessworld