Recession looms as pump priming missed

The country is three months away from a technical recession after the economy shrank by 2.3 percent in the first quarter compared with the final three months of last year due mainly to the government’s failure to deliver a massive pump-priming commitment.

The government has been trumpeting a P300-billion stimulus fund that would have perked up the economy in the first quarter but the National Statistical Coordination Board (NSCB) said the government missed the spending target for the first quarter.

It was the biggest gross domestic product (GDP) contraction quarter-on-quarter in the past 20 years. A technical recession happens when the economy contracts for two successive quarters.

The government also admitted yesterday that economic figures it gave out the past three years were inaccurate.

The NSCB said it was revising downward the economic growth data for the past three years.

The economy actually grew 5.3 percent in calendar year 2006, not 5.4 percent as previously estimated while the much-hyped 30-year high GDP growth in 2007 was trimmed to 7.1 percent from 7.2 percent and the growth figure last year was cut sharply to 3.8 percent from 4.6 percent.

Economic growth in the last three months of last year was actually 2.9 percent instead of 4.5 percent, Romulo Virola, secretary general at the NSCB said.

Economic officials admitted the country is “teetering” toward recession with the GDP compared with a year ago growing just 0.4 percent, also a 10-year low.

The officials blamed the global financial crisis for the slowdown but economists said the economy has been slowing since last year even before the US subprime crisis that triggered a worldwide recession started in the United States.

The 0.4 percent gross domestic product (GDP) growth for the three months to March, from 2.9 percent in the last three months of 2008, was the lowest since the last three months of 1998, when economic output plunged 2.4 percent amid the Asian financial crisis, according to official figures.

“Historic declines in manufacturing and trade sent the economy into hiccups,” Virola said.

Virola also said the government’s boast of massive pump priming costing as much as P300 billion to combat recession did not take place.

Government consumption rose 3.8 per cent in the first quarter from a year earlier, picking up modestly from 2.6 per cent in the fourth quarter, but public construction slumped 4.4 per cent.

‘The pump priming that had been planned in response to the global crisis obviously has not taken place,’ Virola said.

Government spending of P355 billion in the first quarter was below a P361.9 billion target.

The trend continued in April, when spending fell to P108.7 billion from P128.6 billion in March, government data showed.

Industrial output for the first quarter fell 2.1 percent with manufacturing plunging 7.3 percent. Trade, led by electronics, was down 0.2 percent.

“The economy is now teetering into recession,” Virola told reporters, saying the seasonally adjusted gross domestic product in the January-March quarter fell 2.3 percent.

Economic Planning Secretary Ralph Recto, later appeared to contradict him, insisting: “I do not expect a recession.”

While Recto expected the economy to “remain afloat in 2009,” he told reporters he was “less confident” now that Manila would achieve the lower end of its already revised GDP growth target of 3.1 percent to four percent.

“There might be a need to readjust our growth projections for the year,” he said without giving exact figures.

The growth projections have a crucial bearing for the government’s burgeoning budget deficit, with the full-year ceiling set at P250 billion as the government pins its hope on increased spending on infrastructure and social services to kickstart the stalling economy.

With the farm sector growth also slowing to 2.1 percent compared to 2.9 percent in the three months to December 2008, construction became the main growth driver for the first three months as developers rushed to meet pent-up demand for housing with the prices of building materials easing, Recto said.

Recto said “the most pressing challenge for me is the (prospect) of a reduction” in remittance flows by the country’s nine million-strong overseas workforce. The cash transfers are equivalent to 10 percent of GDP and are the main driver for the consumption-led economy.

The government said leading indicators for the May to June period, which included tourist arrivals and electricity sales, were down from the previous quarter, a trend which, if sustained, pointed to recession in the current quarter.

‘If this trend continues we may slip into recession,’ Virola, who released the GDP data, said.

Industry swung from a negligible growth in the fourth quarter to a contraction of 6.6 per cent in the first quarter, seasonally adjusted figures show.

Personal consumption dropped 3.1 per cent in the first quarter after growing 1.5 per cent in the fourth quarter of 2008.

Song Seng Wun, regional economist at CIMB in Singapore, said weaker consumption would weigh on the economy as remittances sent home by millions of Filipinos working abroad are hit by the worst global downturn in decades.

‘With so many Filipinos working abroad, there’s certainly a risk that remittances will slow down and therefore the impact of the global recession will feed through to private consumption in the subsequent quarters,’ he said.

Remittances hit a record $1.47 billion in March, but officials said the global uncertainty meant much of that money is being saved rather than spent.–Daily Tribune