Thursday, 23 April 2009

Philippines ready for recovery -- HSBC

Erik de la Cruz
Business Mirror
http://businessmirror.com.ph/home/top-news/9239-rp-asia-set-for-recovery-says-hsbc.html

THE Philippines and the rest of Asia now appear to be on the road to recovery after seeing the worst impact of the global financial crisis on their economies in the first quarter of 2009, and the region will likely decouple itself from a possible second recessionary episode in the US and Europe.

Frederic Neumann, senior Asia economist at HSBC, said on Wednesday the Asian economy has entered a “transition” period after bottoming out in the first quarter, and looks set to stabilize in the second half of this year.

“We are probably already in the upswing,” Neumann told reporters. HSBC expects to see “very strong” growth in Asia in the second half.

Economic indicators in the first quarter were still “fairly negative” but second-quarter numbers should be better than what was seen in the first three months, he said.

For the Philippines, he said the main concern was the impact on consumer spending of the expected slowdown in remittances of Filipinos abroad.

“But so far the number is remarkably resilient. We were surprised how strong the numbers really are,” he said.

Remittances in the first two months of the year posted an annual 2.5-percent growth to $2.6 billion. The Bangko Sentral ng Pilipinas (BSP) attributed the increase to the rise in deployment of Filipinos abroad and the slowdown in layoffs.

In a worst-case scenario, Neumann said a 20-percent drop in remittances is possible this year. But a flat growth in remittances, which is what the BSP expects to see this year, cannot be ruled out, he said.

The Philippines is not expected to fall into recession but Neumann said HSBC has a “conservative” growth forecast of at least 1 percent for the country’s gross domestic product this year. The government has scaled down its growth estimate this year to 3.1-4.1 percent from 3.4-4.1 percent previously, taking into account the weakening of exports.

HSBC is looking at growth of at least 3 percent for the Philippines next year.

Neumann said the worst may be over as far as the US and Europe are concerned, but a strong recovery for those regions is not expected anytime soon.

“In any financial crisis, there is always a risk of a second dip. Now we’re seeing a sharp recession, which will be followed by a period or recovery, but then another episode of recession is possible,” he said.

“Early next year, we may see a second, mini-recession.”

It will take two to three years to nurse the financial system back to health, he said.

That’s the bad news. But the good news, he said, is that a “fundamental decoupling” of Asia from the West is now possible.

Neumann said there are “underlying forces” which will “lead to a fundamental disengagement of emerging markets from the developed world.”

“In our view, (Asia is) going to avoid the second dip that is expected in the US,” he said, referring to the “mini-recession” expected early next year.

Asian economies, he said, will be supported by domestic demand, which will likely get a strong boost from the fiscal stimulus plans in the region.

“On average, the stimulus packages in Asia are twice as big as those in the West,” he said. The Western economies, however, are the ones in deeper trouble.

Falling inflation in the region should also encourage consumers to spend, Neumann said.

“With inflation coming down, interest rates coming down, oil prices coming down, that should provide relief to domestic consumption,” he said.

Neumann said Asia’s strong financial sector should also help it decouple from the troubles in the West.

“Banks in Asia are fundamentally sound and we see excess liquidity in the banking system in the region,” he said. Those funds will help stimulate economic activity.

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