Saturday, 30 May 2009

Gov’t considering new targets, but still hopeful on growth

With a report from Alexis Douglas B. Romero

The government is looking at revising its growth goals following a disappointing first quarter result, but is holding out hope that rebounds for the rest of the year will allow it to meet existing targets.

Economists and research groups, however, said economic managers appear to have no choice but reduce their 2009 projections.

The January to March growth of just 0.4%, well below the government’s forecast of 1.8-2.8%, has prompted some government officials to declare the country as teetering on the brink of a recession.

But Rolando Tungpalan, deputy presidential spokesman for economic affairs, said the 3.1-4.1% growth target for 2009 could still be achieved if the government "works harder over the next three quarters."

"We would like a 4.5% growth every quarter to achieve the target. The DBCC (Development Budget Coordinating Committee) will look at assumptions and targets again and measures to be put in place," he told Palace reporters on Friday.

The 2009 growth goal has already been revised twice this year, to 3.7-4.4% in February from the original 3.7-4.7%, and then to 3.1-4.1% in April.

Gary B. Olivar, another deputy presidential spokesman for economic affairs, stressed that the Philippines was not yet in a recession.

"Other agencies said we are teetering into or on the verge of a recession but we’re not in a recession. Recession occurs when an economy goes through two consecutive quarters of year-on-year negative growth or contraction," he said.

Mr. Tungpalan added "We don’t see the Philippines going into recession based on the April and May global recession impact monitoring ... Business and consumer confidence are improving."

He pointed to an increase in overseas Filipino workers remittances, an easing in export contraction, and government delivery of infrastructure and social protection programs as likely boosting growth.

"We see real spending taking place this quarter. That should take up the slack in private sector investment ... With consumer confidence picking up, [the] April-June performance would not be worse than the first quarter," Mr. Tungpalan said.

But Ateneo de Manila University economist Leonardo A. Lanzona said lower consumption and weak exports would make it hard for the government to achieve the 3.1-4.1% target.

"Definitely it (full-year growth) will be lower than 3.1%," he said in a telephone interview.

"Investments are not coming in and exports are slow. Consumption is being affected by job losses abroad," he added.

University of Asia and the Pacific economist Peter Lee U said that in order to attain growth within the 3.1-4.1% range, the economy should expand by around 4% in the next three quarters.

"That may be tough. They have to make it (the growth target) a bit lower," he said.

Both said the government needed to increase revenues and boost spending on programs that would spur economic activity.

"The government should increase its revenues and should have a plan to hike its tax collection," Mr. Lanzona said.

Mr. Lee, for his part, said "I favor infrastructure spending. There should also be expenditures on education and health."

Research firm Global Source Philippines, meanwhile, said 2009 growth could fall below 2.5% due to weaker consumption.

"Given the developments, especially as it is personal consumption spending (comprising roughly 80% of GDP) that has surprised most on the downside, our full-year growth forecast of 2.5% no longer appears to be viable and we are inclined to undertake downward revisions in our subsequent reports," it said in a research note.

Global Source noted that government spending did not contribute much to first quarter growth.

"The fiscal stimulus only modestly helped support growth in the first quarter as government consumption expanded by about 3.8% while public construction actually dipped by 4.4%," it said.

The Development Bank of Singapore, in a separate note, said the 0.4% growth was "disappointing" and reflected inefficient public spending and weaker consumption.

"Disappointing is how we would describe the first-quarter GDP report ... The breakdown of the data showed an economy weighed down not so much by weak exports, as we thought it would, but by extremely weak consumer spending," it said

"Other aspects of domestic demand were also weak, underscoring the inefficacy of public stimulus spending."

The bank said it was cutting its growth forecast for the Philippines to 0.5% from its previous estimate of 2.5%.

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