Tuesday, 26 May 2009

Philippine Q1 growth surprise a possibility

PLGM with a report from Reuters

THE ECONOMY may have surged in the first three months of the year, bucking a global recession and even the government’s expectations, economists yesterday said, citing how remittances by overseas Filipinos and government spending likely buoyed growth.

Other economists, however, argued that a lack of government disbursements would have dampened expansion for the period.

"I think those who are projecting lower growth are in for a surprise," said Marcelo E. Ayes, Rizal Commercial Banking Corp. senior vice-president for financial markets, in an interview.

He said the economy likely grew by over 3% in the first quarter, on the back of overseas Filipino workers’ remittances and the government’s stimulus program, whose implementation began in the latter part of March.

The National Statistical Coordination Board is scheduled to release the country’s growth data for the first quarter on Thursday, the same day market players expect the Bangko Sentral ng Pilipinas (BSP) to cut its key interest rates by another 25 basis points.

Socioeconomic Planning Secretary Ralph G. Recto last week said gross domestic product (GDP), the total value of goods and services produced within a given period and an often-cited measure of the size of an economy, likely grew between 1.8% and 2.8% in the first quarter.

Remittances grew by 2.7% to over $4 billion in the first quarter over the same period last year. The expansion was better than the zero growth forecast for remittances by the central bank and negative projections by the World Bank (-4%) and the International Monetary Fund (-7.5%) for this year.

Remittances grew by 13.7% to a record high of $16.4 billion last year.

"All these negative forecasts are coming from people who don’t know the strength of remittances," Mr. Ayes said.

University of Asia and the Pacific economist Victor A. Abola, meanwhile, said the country’s GDP may have grown between 3.8% and 4.1% in the first quarter.

He said government spending for infrastructure grew by a fifth in the first quarter.

Likewise, expenses for infrastructure, which Mr. Abola said helps address unemployment, also grew by three-quarters over last year.

"However, I think the growth will be slower in the second and third quarter — which are also the periods when the government expects faster growth," Mr. Abola said.

"I think domestic demand was strong because of declining inflation and growth in investments," said Luz L. Lorenzo, and economist at ATR KimEng Securities, Inc.

Ms. Lorenzo, who said the economy may have grown by 4.6% in the first quarter, said remittances were playing a big part in the country’s resilience against the global economic slowdown.

Less optimistic

University of the Philippines economist and former Socioeconomic Planning Secretary Solita Collas-Monsod, however, said growth may be on the low end due to the lack of real government action.

"Our monetary policies are good, but I don’t know where our fiscal response is," she said in an interview.

She refused to give a definitive projection, but said the growth may be on the "low side."

As this developed, 11 economists polled by Reuters saw first quarter economic growth at 2.5%, the slowest annual rate of expansion since the fourth quarter of 2001.

Six of them also forecast on average that the economy contracted by a seasonally adjusted 1.8% in January-March. That would be the first seasonally adjusted contraction since the first quarter of 2001 and the steepest fall in at least 14 years, based on available government data since 1995.

Citigroup local analyst Jun Trinidad, meanwhile, said the economy may have grown by 2% in the first quarter, near the low end of the government’s growth forecast for the period.

"We expect a GDP growth of 2% [year on year] in [the first quarter] with succeeding quarters posing incremental GDP gains on resilient remittances, increased fiscal spending, improving consumer sentiment likely to shed the negative wealth effects and BPO proceeds," he said in a commentary late last week.

Mr. Trinidad added the government was likely to breach its budget deficit ceiling of 2.5% of GDP, or P199.2 billion, this year.

He also noted the likelihood the BSP may shift to a neutral policy stance after cutting its rates by 25 basis points on Thursday, to avoid overdoing its easing stance, which could stoke inflation.

The central bank has cut its policy rates by a total of 150 basis points since December, bringing the overnight borrowing rate to a 17-year low of 4.5%.

Results downplayed

But BSP Deputy Governor Diwa C. Guinigundo downplayed the importance of the economy’s growth results for the first quarter, saying monetary policies are crafted looking 15 to 21 months into the future.

"GDP for the first quarter will just be an important footnote to monetary policy making," Mr. Guinigundo said.

"It will either validate or invalidate some of the assumptions you used in formulating monetary policy in the past," he added.


Philippines Seen To Have Registered Modest First-Quarter Growth
By Darwin G. Amojelar, Senior Reporter
With Lailany P. Gomez
Manila Times

THE Philippine economy is likely to have grown at a modest pace in the first quarter of the year, due to Remittances from overseas Filipino workers (OFW) and government pump priming activities, economists polled by The Manila Times said.

The median average of the three economists polled point to the economy, as measured by the country’s gross domestic product (GDP), expanding by 4.20 percent in the January to March period.

A proxy for economic output, GDP is the amount of goods and services produced in a country.

This was way above the National Economic and Development Authority’s (NEDA) forecast of between 1.8 percent and 2.8 percent in the first quarter of the year.

The economy grew 4.7 percent in the first quarter of 2007.

The National Statistical Coordination Board will announce the official GDP figures on May 28.

David Cohen, chief economist at Action Economics in Singapore, projected GDP to grow 4.5 percent year-on-year and 0.3 percent quarter on quarter.

“The primary drag will be the slowdown in exports, as the Philippines was not immune to the collapse in global demand felt by economies across the region,” Cohen said.

He said Philippine exports carry less weight than for some of its neighbors, and domestic demand should help sustain positive growth, both in first quarter and for the whole year.

“We expect annual growth near the bottom end of the government’s 3.1 percent to 4.1 percent target range. Consumption is supported by remittances from overseas workers, and although growth has slowed, it has not showed the sharp fall-off that some had feared,” Cohen said.

In the first three months, remittances rose 2.98 percent to $4.06 billion from $3.95 billion last year, as sea- and land-based workers sent more cash home.

Jonathan Ravelas, market strategist at Banco de Oro Unibank Inc. expects GDP to have expanded by 4.20 percent in the first quarter.

Victor Abola, economist at the University of Asia and the Pacific said the economy may have grown 4.1 percent, or “way above the [forecast of] NEDA aand other economists.”

Net exports effect not that much

“I think we are stressing too much on the large exports decline in the first quarter. But we should consider that imports also declined closely in line with exports. So the net exports effect would not be that much, especially when we consider that electronics exports rely on imports for around 65 percent to 70 percent of exports value,” Abola said.

He said the positive factors may be found in infrastructure and private construction spending, as well as OFW remittance gains.

Abola said the Department of Finance reported that infrastructure spending was 75 percent higher in first quarter of the year from last year, while residential construction and finishing commercial buildings were still up.

“OFW remittances have risen by more than 21 percent in peso terms, and this contributes not only to keep consumer spending at around 4 percent, and supported the construction spending. Every peso of OFW remittance generates P2.50 of income in the economy,” he said.

In a separate report, Citigroup said it expects the country’s GDP to have grown 2 percent in the first quarter on the resilience of remittances, increased fiscal spending and improving consumer sentiment.

The US financial giant, however, warned that the Bangko Sentral ng Pilipinas (BSP) may shift to a neutral policy rate stance after lowering the overnight rates to 4.25 percent on May 28.

“[The] BSP may wait for the cumulative 175 basis points easing to feed-through to lower average bank loan rate,” Jun Trinidad, Citigroup economist, said.

Potential overshooting of fiscal deficit Citigroup also warned against the potential overshooting of the fiscal deficit target of 2.5 percent of GDP.

The bank said the government’s tax effort or tax-to-GDP ratio would reach 11 percent compared with the previous year’s 14 percent owing to disinflation and lackluster business activity.

“Declining corporate incomes, business closures particularly in the SME [sector], negative wealth effects from financial markets, and rising jobless condition may have conspired to lower taxes and tax compliance by more than what decelerating GDP estimates may provide,” Trinidad said.

“We estimate fiscal revenue to be at P90.7 billion [1.1 percent of GDP] less than our fiscal year 2009 tax collection projection of P1.1 trillion [14 percent of GDP]. We calculated this by extending the implied tax volume estimates for the rest of the year coupled with our non-food inflation estimates that should track headline [consumer price index] forecasts,” Trinidad said.

If the dismal tax scenario materializes, Citigroup expects the government to freeze its budget expenditures to deter overshooting the fiscal deficit target this year.

“If government accommodates the revenue slippage, the fiscal gap may shoot up to 3.6 percent of GDP,” Trinidad said.

The government must combine the budget freeze with the privatization of its San Miguel Corp. shares and other assets to live within its fiscal target, he said.

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