(STAR) By Des Ferriols - Businessmen expect the economy to slow down in the first two quarters of this year on concerns over another political crisis and the likelihood of a recession in the US.

The Bangko Sentral ng Pilipinas (BSP) said that the confidence index dropped by 18 index points based on its Business Expectation Survey (BES). In the survey, executives were asked about their business outlook for the first and second quarter of the year.

Compared to the confidence level of 48 points in the first quarter of 2007, BSP deputy governor Diwa Guinigundo said businesses were 18 points less optimistic about their first quarter prospects this year.

“It’s important to point out that when the BES was conducted in the last week of January and the beginning of February, inflation was higher than expected and there was a pervasive fear about the impact of recession and credit crunch in the US,” he said.

Moreover, Guinigundo said businessmen were worried about the impact of the renewed local political tension as well as declining business competitiveness due to the strength of the peso and the unabated increase in crude oil prices.

“The first month of the year was marked by negative sentiments, including political noise and that was the environment in which this survey was taken,” he said.

The results of the year’s first quarterly BES would indicate that the second quarter BES would be even less optimistic, as the business sector grapples with the impact of the Arroyo administration’s growing troubles stemming from serious charges of graft and corruption.

According to Guinigundo, the market’s appreciation of the US economic slowdown now pointed to a 60 percent probability of a recession, from only about 55 to 56 percent earlier in the year.

Despite the falling optimism, however, Guinigundo said the business sector’s outlook on selected economic indicators showed that businessmen expected a better foreign exchange rate and lower inflation.

On the other hand, expectations for the second quarter were slightly better, although businesses were still less optimistic than they were over the same period last year.

“This can be explained by the fact that consumer expenditures usually pick up during the summer season,” said Iluminada Sicat, director of the BSP’s Department of Economic Statistics.

Sicat said importers were the most optimistic while exporters were the least excited about prospects in the first two quarters of the year.

Sicat said the construction and services sectors posted the highest confidence indices mainly because of the expected increase in tourist traffic and the continuing property boom.

Sicat said that the general optimism in construction and services also explained the overall confidence that employment would increase in the two quarters despite the anticipated slowdown in the domestic economy.

In the industry sector, Sicat said expansion plans are afoot mainly for industries that support the services and construction sectors such as transportation, hotels and restaurants, financial intermediation and construction-related activities.

The BSP said the BES survey was conducted from Jan. 7 to Feb. 6, involving 1,258 respondents nationwide from the top 7,000 corporations registered with the Securities and Exchange Commission.

According to Sicat, large firms with the highest number of employees were the most optimistic about their prospects, while smaller companies tended to be pessimistic.

S&P says RP can weather US recession By Iris C. Gonzales Friday, February 22, 2008

Standard & Poor’s (S&P) believes the Philippines can weather a US recession but noted that some sectors would inevitably be affected.

S&P associate director Agost Benard said the electronics sector is among the industries that may be affected in case the economic slowdown in the US worsens into a recession.

Benard, in a press briefing late Wednesday, said a US recession can affect the Philippines in two major ways, one of which is a decline in exports.

“The most direct way is via decreased demand for exports,” Benard said, adding that the electronics sector is to a certain degree, vulnerable.

The US, the country’s largest trading partner, is struggling to ward off a recession following a credit crunch last year in its housing market.

Benard said the second reason is a general increase in global risk aversion which could affect the country’s other trading partners and consequently harm the local economy.

He also said that there is a low possibility that dollar remittances from overseas Filipino workers (OFWs) will decline.

“But that’s a very low likelihood,” Benard said.

Nevertheless, Benard said the Philippines is less vulnerable compared to other countries given its improving macroeconomic fundamentals. The country’s gross domestic product (GDP) grew 7.3 percent last year, its fastest growth in 31 years.

S&P currently has a BB- rating on the country’s long-term foreign-currency or three notches below investment grade, with a stable outlook.

The debt watcher has sent a review team to the Philippines for a series of meetings with government officials from February 18 to 24 but S&P representatives gave no hints on whether or not a ratings action will happen soon.

Benard said the ratings agency would continue to monitor improvement on government efforts to mobilize revenues through taxes and not just through the sale of state-owned assets.

The Bureau of Internal Revenue (BIR), missed its collection target of P765 billion in 2007, collecting only P711 billion. The Bureau of Customs (BOC), the second largest revenue agency, also missed its collection target of P228 billion last year, collecting only P210 billion.

S&P is the second credit rating agency to send a review team to the Philippines this year after US-based Moody’s Investors Service visited the country last January.

Last January 25, Moody’s raised its outlook on the country’s key ratings to positive from stable, citing progress in government efforts to stabilize public sector finances.

The affected ratings include the B1 long-term government foreign- and local-currency ratings, the B1 foreign-currency bank deposit ceiling and Ba3 foreign currency country ceiling.

Moody’s B1 rating is four notches below investment grade.

Chief News Editor: Sol Jose Vanzi

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