Think tank cuts RP growth

The Economist’s arm: Economic drivers weak
 
The Economist Intelligence Unit (EIU) said the Philippines’ economic growth is expected to slow sharply in 2009 because of the deepening global financial crisis. EIU is “the world’s foremost provider of country, industry and management analysis.”

Its forecast—a downgrade to 1.8 percent from 2.3 percent—was less upbeat than the latest one from Fitch Ratings Inc.

On Wednesday, Fitch said that for 2009, the country’s economic growth based on gross domestic product (GDP) is seen to be at its lowest level—at 2.5 percent—since the Asian financial crisis in 1998 because of adverse effects of the worldwide meltdown. GDP is the total value of all goods and services produced in a country in a year.

In November 2008, the government’s economic managers downgraded the official economic growth forecasts for 2008 and 2009, even as President Gloria Arroyo gave assurances that measures were in place to cushion the Philippines from the US recession.

The Development Budget and Coordination Committee had revised the GDP growth target for 2009 to range between 3.7 percent and 4.7 percent—lower than an earlier target of between 6.1 percent and 7.1 percent.

Economic growth in the third quarter of 2008 at 4.6 percent was slightly “damaged” by the global financial crisis and high oil prices.

This was weaker compared to 7.1 percent during the same period in 2007, the National Statistical Coordination Board had reported.

In a recent comment, EIU said that it had downgraded its growth forecast for the Philippines’ GDP for 2009 to 1.8 percent from 2.3 percent as the major drivers of growth would weaken particularly exports, investments and remittances.

“Economic growth will slow sharply in 2009, when real GDP will expand by 1.8 percent, less than half of the 2008 level growth, which was estimated at 4.2 percent,” it said.

Exports of goods and services are expected to contract by 1 percent next year, as the United States, the country’s major export market, was hit by the collapse of big investment banks over the subprime mortgage crisis.

Also in the recent comment, EIU said the inflow of remittances is likely to weaken as the slowdown in the US, the source of the bulk of remittances to the Philippines, reduces the amount of money that overseas workers can send home.

High domestic borrowing costs, it added, will also weigh on investment and consumption growth.

“A global environment of grea­ter risk aversion will make investors increasingly cautious about channeling funds to emerging markets such as the Philippines and [such environment] could lead to higher long-term interest rates,” EIU said.

As a result of slower growth, it added, the government’s budget deficit will widen to 2.1 percent of GDP in 2009 from an estimated 0.9 percent in 2008.

The government’s projected budget deficit was no more than 1 percent of GDP, or P75 billion for this year.

Inflation or increase in prices is expected to reach 6 percent in 2009, which is within the central bank’s forecast of 6 percent to 8 percent.

Partial recovery in external and domestic demand is expected in 2010, when EIU expects GDP growth to remain weak at 3.2 percent.

According to The Economist website, EIU was founded in 1946 when a director of intelligence was appointed to serve The Economist. EIU is now a leading research and advisory firm with more than 40 offices worldwide. For over 60 years, it has delivered “vital business intelligence to influential decision-makers around the world.”

The website said EIU’s “extensive international reach and unfettered independence make [it] the most trusted and valuable resource for international companies, financial institutions, universities and government agencies.”  –Maricel E. Burgonio, Reporter, Manila Times