Wednesday, 1 July 2009

No Philippine recession: study

Cai U. Ordinario
Business Mirror

THE impact of the global financial crisis on the Philippine economy will likely cut the country’s gross domestic product (GDP) growth to 2.4 percent in 2009, according to an independent analysis released by First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) Capital Markets Research.

However, this was still higher than the latest projection of the interagency Development Budget Coordination Committee (DBCC), which revised the country’s full-year growth projections downward. The DBCC now sees GDP to be within a range of 0.8 percent to 1.8 percent in 2009.

Nonetheless, the FMIC-UA&P Capital Markets Research group said the projection is lower than the 3.8-percent GDP growth posted in 2008. This was based on the latest data revision of the National Statistical Coordination Board (NSCB) released in May.

The group also maintained a “no recession” scenario for 2009, and even said a 1.5-percent GDP growth is possible at the end of the first half of the year, which would signal a “bottoming out” of the Philippine economy.

“Taking off from the basic trends so far and seeing a weak recovery in the United States, Europe and Japan, but robust growth in China, we expect the economy to bottom out in the first half of the year [and pick up] to 2.5 percent to 3.5 percent GDP growth in the second half; on average, the year should slow down to 2.4 percent from 3.8 percent in 2008,” the FMIC-UA&P Capital Markets Research group said in the June 2009 edition of The Market Call.

The group also sees headline inflation rate in the Philippines averaging 3.3 percent this year and increasing to 4.2 percent in 2010. This will be due largely to higher crude-oil prices.

The FMIC-UA&P Capital Markets Research group also expects inflation to go below 1 percent in July and August. However, inflation is expected to hit 4 percent in December.

Meanwhile, interest rates are expected to remain low since the 91-day T-bill rates are seen to slow down to a low of 3.5 percent by August and inch up to 4 percent by year-end.

“(The) benchmark 10-year T-bonds should follow a similar pattern, dropping to a moderately low of 7.2 percent by September and flatten toward year-end, a slight downward bias. The third-quarter yields do not go down as fast as the headline inflation rate and the likely rate cut, because of larger fundraising during the quarter,” the group said.

Labor and employment

The increase in employment in the April round of the Labor Force Survey, released in the second week of June, came as a surprise, according to the FMIC-UA&P Capital Markets Research group.

Considering the severity of the global economic recession, this is considered a positive development and would be a good sign that a recession will not be possible in the near term.

The group said despite the fact that there was an increase in the number of those who worked less than 40 hours per week, this only reflected the shift that businesses needed to make to avoid laying off employees.

Filipinos who worked less than 40 hours a week increased to 41 percent of total employment, higher than the 35.6 percent in 2008.

“We should consider that the 1-million decline in those working at least 40 hours per week moved to the lower category of falling below the benchmark time. Netting this out from 2.4 million still gives 1.4 million new part-time employees. Even in the unlikely assumption that these only worked 50 percent of the time, the net increase in employment would still be some 700,000, or 2.2-percent increase for a year. That is still above the population growth of anywhere between 2.0 to 2.2 percent,” the group added.

Weaker peso

The group sees the peso further depreciating in the second half of 2009, mainly due to slower overseas Filipino worker (OFW) remittances and negative double-digit growth, costlier oil imports and a higher fiscal deficit.

The group sees the peso hitting P48.11 in July, P48.28 in August, and P48.51 in September. The group said the peso has been trading at around P47 to P48 for the most of mid-May to June, largely a fallout of the crisis in the US economy and other international markets.

“It finally broke the 48-per-dollar mark when the government revised its growth forecast for 2009 from 3.1 percent to 4.1 percent to just 0.8 percent to 1.8 percent. The government’s raising of the deficit ceiling from P199.2 billion to P250 billion also contributed to the weakening of the peso against the dollar. This projected budget shortfall of 3.2 percent of GDP, together with a rally in the greenback, continues to weaken the peso,” the group said.

Another major factor for the depreciation of the peso is the slow increase in OFW remittances, largely because the peak months of OFW remittances have passed. A depreciation in the peso, the group said, is needed to boost remittances.

“Given that we are now past the months with high OFW remittances, we do not expect dollar remittances to post large growth rates. Nevertheless, we should still expect positive growth given the sustained deployment of migrant workers to different countries,” the group said.

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