Gloomy H1 forecast but no recession

Written by Erik de la Cruz / Reporter

Sunday, 29 March 2009 21:46

Indicators point to a gloomy first half even with the Philippine economy expanding by as much as 4 percent this year. The government’s growth target is 3.7 percent to 4.4 percent. Banco de Oro Unibank (BDO) and Bank of the Philippine Islands (BPI) are sticking, however, with their forecasts the small expected growth will keep the economy out of a recession even with electricity sales down in the first two months and as exports and imports continued to drop, suggesting a steep contraction in both external and domestic demand. The Metropolitan Bank & Trust Co.’s (Metrobank) research team agrees, but it has come up with a bit less bullish growth forecast of 3.4 percent for the country’s gross domestic product (GDP). “The Philippines, so far, has been more fortunate than other countries in avoiding the worst effects of the ongoing [global] recession,” said Jonathan Ravelas, chief market strategist of BDO. “I think I can be a little bit more upbeat in my prognosis than in the past.” In the Philippines, he added, “financial stability is now being regained and market confidence gradually being restored.” Philippine stocks rallied strongly last week, with the key index gaining 11.25 percent or 206.35 points from the previous week to breach the 2,000 level for the first time this year. Investors snapped up bargains for eight straight sessions, encouraged by a strong rally in US stocks amid renewed optimism on Wall Street the world’s largest economy will soon recover from recession. The peso has trimmed its loss this year to 1.4 percent from 2.6 percent in the first two months, as investor appetite for risks improved. “Despite the highly unfavorable global economic scenario, BPI remains positive that the Philippine economy will be able to ride out the present crisis and deliver a respectable, albeit more moderate, pace of economic growth,” the bank said in a regulatory filing submitted ahead of its annual stockholders’ meeting on Tuesday. BPI is also keeping its GDP growth forecast of 4 percent, saying “the structural reforms in the fiscal, monetary and banking sectors implemented in the past, the lesser dependence on merchandise exports and the expected resilience of remittances should help cushion domestic demand.” While the biggest local banks remain upbeat about the domestic economy, many foreign investment banks have scaled down their growth forecasts for the Philippines as the global crisis deepens. The International Monetary Fund, which has further revised downward its global growth projections for 2009 to 0.5 percent from 2.2 percent that was announced in November, is sending the signal that global conditions have worsened. The fund now expects the world economy to contract and enter a “Great Recession” this year. Singing the same tune, some economists predict another gloomy quarter ahead following a “rough” first quarter for the domestic economy. “It is best that business strategists prepare for the worst during the first half of the year,” said a team of economists from First Metro Investments Corp. (FMIC) and University of Asia & the Pacific (UA&P) in a joint monthly report. In the March issue of The Market Call published by FMIC, the investment banking arm of Metrobank, the team said the global recession has turned out worse than earlier expected, as reflected by the mostly negative numbers that have emerged from the usual indicators. According to the team, sales of Manila Electric Co. in January and February show year-on-year declines of 9.9 percent and 2.7 percent, respectively. Merchandise exports in January were down 41 percent from year-ago level while imports—the bulk of which account for raw materials for electronics exports—dropped 34.5 percent. Still, there were some positive signs for the economy, the team said, citing the slight 0.1-percent growth in remittances of Filipinos working abroad in January and a 1.7-percent rise in total employment. And despite the drop in electricity sales, it said consumption spending appeared to be still holding up well as sales of the fast-food chains were “relatively robust,” especially in February. Data gathered by the team from real- estate firms, which were focused on the low- to medium-cost markets, also showed improved sales for the same period. “Nonetheless, the two sets of information, and the increase in employment would tell us that while there was growth in the first quarter, it was likely to be clearly lower than the 4.5-percent increase posted in the fourth quarter of 2008,” the FMIC-UA&P team said. The team predicts GDP growth in the second quarter to remain below 4 percent but not lower than 3.5 percent given the push on consumer spending from remittances.