WB revises RP forecast, sees recession this year

The Philippines’ economy will contract this year for the first time in 11 years, the World Bank said yesterday, cutting its 2009 growth forecast for the country to minus 0.5 percent.

The bank adjusted downwards the forecast it made in April of 1.9 percent growth in gross domestic product (GDP) for the Southeast Asian country.

After the quarter-on-quarter slowdown in the three months to March, when GDP grew o.4 percent from a year earlier,” a year-on-year 0.5 percent contraction is now expected for 2009 and a modest recovery is projected for 2010,” the bank said in its quarterly country update published Thursday.

Manila insists the economy is still on track to grow by between 0.8 and 1.8 percent this year.

The Philippines’ GDP slipped to minus 0.5 percent in 1998 following the Asian financial crisis.

The World Bank said a substantial downward revision in global prospects for the year would impact on Manila’s exports as well as on remittances by its large overseas workforce.

It projects a four percent contraction in remittances in dollar terms this year and two percent growth in 2010. The central bank says remittances would be flat this year.

A P330-billion ($6.83-billion) fiscal stimulus package by the government has had “a delayed impact,” the World Bank said, because “much of the cash outlays went to pay for work done last year.”

While the jobless rate unexpectedly eased to 7.5 percent in April, more spouses and children flooded the labor force “to supplement lower household income and could signal a rise in returning workers from overseas.”

While the stimulus package should show more impact during the rest of the year, “the weakening of tax revenues limits the room for policy adjustments later in 2009 and risks undermining the stimulus,” it added.

Meanwhile, the central bank Thursday trimmed its key interest rates by a further 25 basis points, bringing the overnight borrowing rate to 4.0 percent and the overnight lending rate to 6.0 percent – two percentage points down from December 2008 levels.

The bank said the latest deductions “will support economic activity as banks are expected to pass on the lower borrowing costs to clients.” – AFP