Merrill Lynch cuts RP growth forecast

MANILA, Philippines—American investment banking giant Merrill Lynch has scaled down its economic growth outlook for the Philippines this year to 1.4 percent from 3.1 percent following an anemic first-quarter output.

But despite the lower 2009 growth forecast, the Philippines was seen among the few emerging markets in Asia avoiding a contraction for the year, based on the bank’s global economics report dated May 29.

By next year, the country’s growth rate is projected to improve to 2.5 percent.

Other neighboring countries are seen contracting this year, such as Singapore (-6.5 percent), Hong Kong (-3.1 percent), Malaysia (-4 percent), Taiwan (-5.5 percent) and Korea (-3 percent).

Aside from the Philippines, other countries expected by Merrill Lynch to post growth this year are China (8 percent), India (5.1 percent) and Indonesia (3.6 percent).

In its report, Merrill Lynch made a list of positive and negative surprises in first-quarter gross domestic product (GDP) growth among monitored Asian economies. The Philippines’ dismal 0.4-percent year-on-year GDP growth was counted among the negative surprises versus an expected expansion of 2.4 percent.

India, Indonesia and Korea were cited as the only ones which grew faster than expected in the first three months, while China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand likewise fell below expectations.

“Admittedly, decoupling—the idea that Asia will not do what the US does—didn’t occur as expected. But it’s hard to understand the numbers without reference to it. No country came close to the 2.6-percent year-on-year contraction achieved by the US. Asia either did much better or much worse,” the report said.

But despite the first-quarter’s disappointing GDP data, Merrill Lynch said it was optimistic about the next few quarters—a view it has held for some time. The report said the next three quarters would mark the upward leg of a “yo-yo” recovery as “China’s economic policies gain traction, global inventories are rebuilt, and exports recover from their heart attack.”

“The last point is key for the second half of the year. China—the leader of the recovery to date—can only do so much for the rest of Asia [and the world]. The next step requires G-3 [US, Europe and Japan] demand to stabilize. We are optimistic that this will occur,” it said.

“Global inventories need to be rebuilt, and consumer or business spending that was postponed over the last two quarters will be resurrected as financing conditions ease. What goes down must come back up [the yo-yo]. As this happens, the small countries that have experienced the deepest contractions could well post the steepest rebounds,” it explained. –Doris Dumlao, Philippine Daily Inquirer