Another dim growth forecast

Standard & Poor’s estimate: 2.2-2.7% for 2009

INTERNATIONAL DEBT watcher Standard & Poor’s yesterday added to below target growth projections for the Philippines, citing a hit to the country’s exports as the main drag.

In a report, S&P projected gross domestic product (GDP) growth of 2.2-2.7% this year, below the government’s forecast of 3.7-4.5%. It compares with last year’s 4.6% result and 2007’s three-decade high of 7.2%.

Earlier this week, fellow credit ratings firm Fitch Ratings said the Philippines could grow by just 2%, while the International Monetary Fund put forward a 2.25% estimate.

"[Declining inflation] will fail to fully offset the impact of slowing external demand and declining remittances," S&P said in its first-quarter Asia-Pacific macroeconomic outlook.

The government yesterday reported that inflation fell to 7.1% in January.

"As expected, the fourth quarter of 2008 witnessed slightly weaker growth of 4.5% (compared with the nine-month average of 4.7%) because of lower domestic consumption and exports," the ratings firm said.

The Philippines, however, is expected to fare better than neighboring economies such as Japan, Hong Kong, and South Korea.

S&P Asia Pacific Chief Economist Suvir B. Gokarn said the country’s slowing electronic export sector — hit by weak demand from developed markets such as the US and Europe — coupled with slower growth in remittances would be the main growth damper.

"Trade linkages will be critical," he said in a teleconference.

The country’s semiconductor manufacturing sector, which contributed more than 60% of total exports in 2007, expects to slow by as much as a tenth this year. Industry leaders have also warned of layoffs and plant closures due to slower demand abroad.

"Exports of both electronic and commodity goods will bear the brunt of the weak global environment," the S&P report states.

"Boosts from remittances and investment inflows will lessen, leading to a weaker 2009," it adds.

But Mr. Gokarn said a recovery as early as this year could be expected, due to monetary policy measures implemented since August that will help boost domestic consumption.

The Bangko Sentral ng Pilipinas late last month cut policy rates by half a percentage point, following a similar rate cut as 2008 ended.

"We expect more of these in the coming months ... helping financial systems gain confidence to start lending money again," Mr. Gokarn said.

Demand for electronic exports will also return next year, the S&P report said.

Mr. Gokarn downplayed the importance of fiscal stimulus packages in "relatively small" economies like the Philippines, saying that fiscal policy would make a more significant difference.

The government has announced that it would be spending around P330 billion this year to bolster the economy.

Aside from making sure that stimulus packages are implemented efficiently and as soon as possible, he said governments must see to it that construction activities for infrastructure are not halted as funds run the risk of being diverted to other projects. — Paolo Luis G. Montecillo