Worst seen over for RP, others in Asia – HSBC Economist

MANILA, Philippines — The worst shock waves from the global financial crisis and commodity price spikes may be over for the Philippines and other emerging markets which can now “decouple” from the slump in the West, an economist from British banking giant HSBC said yesterday.

“People have criticized decoupling but what we currently see is a strong form of decoupling. It doesn’t mean that the Philippines will grow by 8.0 percent next year but even if it grows by 4.0 percent next year, it would be a remarkable performance relative to the US, which will have negative growth this year and zero next year. That is decoupling,” Hong Kong-based HSBC regional economist Frederic Neumann said.

Although the panic in Wall Street and other financial markets has died down, he said the US and Europe may take two to three more years to cure the lapses in their financial systems.

“But for Asia, the worst is over and what’s interesting for us is for the first time, emerging markets are in a financially very strong position and that despite the collapse of the global economy, you’ve actually seen very little impact on emerging markets. And I would contend that the Philippines is a good example of the resilience of emerging markets,” Neumann said.

For instance, the economist said the Bangko Sentral ng Pilipinas had been slashing interest rates in this environment as opposed to the previous crises wherein the template response was to tighten monetary policy and prevent a peso depreciation. “Its not just the Philippines. It’s the same with Indonesia, Brazil, India and China is coming back strongly,” he said.

For the rest of this year, Neumann sees the BSP cutting its key interest rates by another 50 basis points and even possibly freeing up some liquidity currently locked up in its high-yield special deposit accounts or even cutting the reserve requirement on banks.

Despite recent monetary easing, which was meant to ensure sufficient liquidity, he noted that the peso had remained stable. But he also noted that the BSP may soon adopt a bearish bias for the peso—such as by buying US dollars from the open market—because a weaker peso may even be beneficial to the domestic economy. He projected that the peso could end the year at 53 against the greenback.

A potential depreciation of the peso, he said, could offset a potential decline in overseas remittances that could arise from the global recession. Earlier, Neumann projected a 20-percent drop in remittance inflows to the Philippines this 2009, but he said this was now under review given the relatively robust performance in the first two months.

“What we’ll probably see is a shift in (source of) remittances. Sea-based remittances will contract because of the collapse in global trade but because every government in the world is raising fiscal spending and pump priming, that should benefit construction industries and maybe some Filipinos will find new jobs in that sector and offset job cuts in other sectors,” he said.

The economist said a lot of spending was likewise going to healthcare, a key component of US President Obama’s fiscal stimulus program.

But despite the risks on remittances, Neumann said the Philippines could avoid a recession or economic contraction this year. “Maybe growth will go down to 1.0 percent, which is obviously disappointing when you look at the performance in the last seven years but it’s still robust compared to what’s happening to the global economy,” he explained.

He is also not too worried about the slump in electronics, noting that jobs in the electronic sector in the country was not a large portion of the workforce and that there was little value added given that electronic exports required a lot of imported components.–Doris Dumlao, Philippine Daily Inquirer