Monday, 1 June 2009

Low GDP figure baffles Philippine Central Bank

Jun Vallecera
Business Mirror

THE Bangko Sentral ng Pilipinas (BSP) is baffled by the lack of solid growth in the first three months when bank-lending growth, while lower than previous, continues to be strong.

BSP Governor Amando Tetangco Jr. and his deputies acknowledged the broader macroeconomic picture does not tally with what the financial data submitted by banks and financial institutions suggest.

As a result, they all want their fiscal colleagues to revisit current fiscal policy and see if this can be made to support more closely with the monetary objective of stable prices and optimal growth.

“As I said before, there has to be a good mix between fiscal and monetary policy. On our side, we have adopted an easing or accommodative stance since the last quarter of 2008, so any additional fiscal spending can help,” Tetangco said.

This was drawn by confirmation that local output, measured as the gross domestic product (GDP), grew by only 0.4 percent in the first quarter, sharply lower than the consensus growth—seen earlier averaging as much as 2.5 percent.

Neither Tetangco nor BSP Deputy Governor Nestor Espenilla Jr. can explain the apparent disconnect.

Based on banking data, and even if one validates this with the various banks, lending continues to be strong. Some of the big commercial banks even report double-digit lending growth, and lending is also strong even in the rural-banking industry,” he said.

Lending across all banks averaged 18.9 percent in March or slower than bank lending in February averaging 22.5 percent, but was still deemed robust.

Espenilla said there had been some tightening of credit standards resulting from the global financial downturn, but the bottom line is that local banks continue to lend in healthy volumes.

“Credit is not an issue from that perspective. But as to how that connects to lower GDP is something worth analyzing,” Espenilla added.

He sees lending still growing in double digits in the months ahead as banks endeavor to refocus from treasury operations, prevalent in the past, to the more traditional or core lending activities the industry is known for.

Espenilla and Tetangco acknowledged the GDP report is a lagging indicator and that the impact of long-gestation projects has yet to be reflected in the quarterly reports.

Tetangco said demand indicators like loan and liquidity “remain consistent with sustained economic activity.”

And yet, strong lending activities cannot in this case be linked to an economy that ought to have moved more quickly during the period but hasn’t, according to Espenilla.

Tetangco said the Cabinet-level Development Budget Coordination Committee (DBCC), where he sits as ex-officio member, is set to review the year’s fiscal and monetary programs later this month.

“They have to look at the factors behind the slowdown, and whether or not the first-quarter outturn can be considered the worst. If so, then the second quarter could prove better,” he said.

On the issue of additional fiscal space, Tetangco said the more important consideration was the long-term trend: “What is important is the longer-term trend in fiscal policy, whether you see fiscal consolidation happening over the medium to long term so that you can have a bigger deficit in the short term.”

This view cuts to the chase of what the central bank officials have been saying since the start of the year when they first advocated for a wider-than-programmed budget deficit as an antidote to the global recession.

“If the market believes that over the medium and long term the government is able to go back to fiscal consolidation then there should be no negative market reaction,” Tetangco said.

Finance Secretary Margarito Teves has stuck to his guns and refused to widen the year’s budget deficit, seen averaging within 2.5 percent of GDP of P199.4 billion.

Teves said a deficit as wide as 3 percent of GDP, for example, was out of the question.

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