WB: RP GROWTH TO SLOW DOWN / ASIAN STOCKS SOAR
MANILA, APRIL 3, 2008 (STAR) By Des Ferriols - The country’s growth momentum will slow down to 5.9 percent this year as East Asia shudders from the impact of the US economic slowdown, according to the World Bank.
The WB also decried the higher number of impoverished families in the Philippines despite its having outpaced other Southeast Asian countries last year in terms of growth.
For the WB, East Asia comprises the Philippines, China, Indonesia, Japan, Malaysia, Thailand, Vietnam, Hong Kong, South Korea, Singapore, Taiwan, and some smaller economies such as Cambodia, Laos and the Pacific islands.
With the financial turmoil in the US and the resulting global slowdown, the WB announced yesterday it was scaling down its growth projection for the Philippines from 6.2 percent.
“While the sub-prime crisis will have its impacts, the more immediate concern is that in virtually every East Asian country, inflation is climbing to uncomfortable levels,” Jim Adams, vice president of WB’s East Asia and Pacific region, said.
For this month alone, inflation rate was expected to surge to nearly six percent as the country grapples with tight rice supply and with the resulting spike in food prices.
“We are already seeing real incomes of poor people living in rural and urban areas decline substantially as a result of higher food prices,” Adams said.
But Adams stressed the Philippines has accumulated substantial reserves of over $34 billion to help it weather adverse external conditions and potential shocks.
While the strength of the peso is expected to cushion the impact of the global downturn, the WB remains worried about the increase in poverty incidence from 30 percent in 2003 to 32.9 percent in 2006.
“The economy’s strong performance in the last four years has not translated into poverty reduction,” a WB report said. The report added only four of 17 regions recorded improvement in the poverty situation.
According to the WB, falling real family incomes and smaller public spending contributed to the rise in poverty.
With exports slowing down in 2007, the WB said the country may find solace from the high inflow of remittances, which amounted to $14.4 billion.
Filipino workers deployed overseas have sent enough money home to temper the effects of export slowdown and to turn a large trade deficit into a healthy current account surplus of 4.4 percent of gross domestic product (GDP).
The WB also said low tax collection resulting from administrative inefficiency has significantly reduced government spending on meaningful socio-economic programs and infrastructure.
Hurting the tax effort, WB noted, are under-registration of taxpayer, lack of risk-based audits, and weak anti-smuggling enforcement.
On the other hand, WB said the decade-long regime of low interest rates and spreads has provided the government with more flexibility in increasing capital and social spending.
The government’s primary surplus of four percent of GDP has helped trim its debt to 55.8 percent of GDP in 2007 from 63.8 percent in 2006.
For WB resident economist Vera Songwe, developing countries could only start bringing down poverty rates after they post sustainable economic growth for 10 years.
“The Philippines is at the five year mark,” Songwe told reporters, saying that since 2002, economic growth had outpaced population growth.
“The Philippines has a very good opportunity but a very short window,” she said.
WB chief economist for Asia, Vikram Nehru, said Philippine policies to control inflation were impressive as they balanced the pressures of both demand and supply.
Economic growth was high while inflation remained under control with interest rates going down, Songwe added, saying “the good fiscal policies of the last two years prepared (the country) for the bad times,” that are now looming with a possible US recession and high oil and commodity prices.
However private investment into the Philippines remained weak, export growth had slowed, raising concerns about the country’s competitiveness.
Prompt action needed
The WB, in its report, said East Asian nations must act promptly to ease the burden of mounting food and fuel prices on the region’s poor.
Inflation poses a greater challenge to the region’s economies than the current financial turmoil, it said.
In its half-yearly update on the region’s outlook, the bank said growth in developing East Asian economies could slip by one to two percentage points this year to 8.5 percent as the US credit crisis unfolds, damping demand for exports.
It warned that food and fuel prices that have soared in recent years are a more pressing problem for governments to tackle. Since 2003, oil and many other commodity prices have more than tripled and doubled, respectively.
The urban poor and landless rural workers who devote between a third and two thirds of their expenditures on food are seeing their real incomes decline substantially, the report said.
“While higher fuel prices hurt everyone, the poor are hurt disproportionately,” it said.
The region could suffer an aggregate income loss of about one percent of gross domestic product in 2008 from the effect of higher food prices and additional increases in oil and metals prices, the bank said.
The report noted that some economies that are net exporters of commodities are enjoying gains in overall national income and that higher food prices do help some farmers – although small farmers are usually hurt because they tend to be net consumers of food.
The bank warned that controlling prices to temporarily curb inflation distorts market signals and encourages black markets over the long term.
East Asian governments have dealt with such challenges in the past with a variety of solutions that include targeted subsidies, conditional cash handouts or school lunch programs, the report said.
“These programs now need to be considered again and reintroduced before the problem becomes too acute,” it said.
Growth of 8.5 percent would be the lowest for developing East Asia since 2002, and down from 10.2 percent last year.
“East Asian economies will face testing times in 2008,” the bank said. It based its forecast on expected US growth of between 0.5-1.4 percent in 2008, down from 2.2 percent last year, and to be followed by a recovery in the one percent to two percent range next year.
China’s growth is expected to dip to 8.6 percent after five years at rates of above 10 percent, mainly due to lower export growth.
Aside from the Philippines, Indonesia, Malaysia, Thailand are expected to experience a more modest easing of growth to the five to six percent range.
Growth in the economies of Hong Kong, Singapore, Taiwan and South Korea is forecast to slow slightly to around 4.6 percent, as a group.
Still, despite the US credit crisis, the region’s economies are likely to stay buoyant as investments in sound macroeconomic policy and structural reforms over the past decade have brought greater resilience and flexibility, the bank said.
The region’s high levels of foreign exchange reserves, economic momentum and diversification of trade and financial flows afford it some room to maneuver in adjusting to the impending global slowdown, the report said.
East Asian exporters have benefited in recent times from trade both within the region and beyond to markets other than the US, the report said. — with AP
Asian stocks soar amid end to US credit woes Thursday, April 3, 20
BANGKOK – Asian stocks surged yesterday as investors took heart from an overnight rally on Wall Street amid a growing belief that the worst of the credit crisis may be over.
In Tokyo, the region’s biggest bourse, the Nikkei 225 index jumped 3.3 percent in morning trade to 13,077.5. Hong Kong’s Hang Seng Index soared as much as 4.6 percent to 24,195.3.
In mainland China, the Shanghai Composite Index rose more than 3 percent, and benchmark indices in Australia, the Philippines, Singapore, South Korea and Taiwan all gained more than 2 percent.
“Investors believe the credit crisis in the US is over,” said Francis Lun, a general manager at Fulbright Securities in Hong Kong. “They think the worst has gone.”
In New York Tuesday, the Dow Jones industrials climbed nearly 400 points, around 3.2 percent, to 12,654.4, and all the major US stock indexes were up more than 3 percent.
In Tokyo trading, megabank Mitsubishi UFJ Financial Group shot up 7.6 percent. Exporters also benefited from a stronger dollar, which rose to nearly 102 yen. Toyota Motor Corp. gained 4.2 percent and Sony Corp. rose 4.7 percent.
In Hong Kong, Chinese banks advanced. By midday, Bank of China advanced 5.3 percent, Industrial & Construction Bank of China rose 6.5 percent and insurer China Life rose 6.1 percent.
Oil companies also climbed higher, with Sinopec rising 8.2 percent and PetroChina adding 3.9 percent.
NY stocks rally
Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks amid easing worries about the credit crisis that has battered many major banks and optimism that the US economy – a major export market for Asia – is faring better than expected.
Financial stocks were among the big winners in US and Asian trading after Lehman Brothers Holdings Inc. and Switzerland’s UBS AG issued new shares to help bolster their balance sheets. The news was viewed as upbeat and offset even an announcement that UBS will take a fresh $19 billion (euro12 billion) write-down due to additional declines in the value of its mortgage assets and other credit instruments.
With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from America’s credit struggles has been felt. Moreover, the banks’ moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Analysts believe there must be a recovery in bank and brokerage stocks to lead major stock indexes higher. Some of the biggest financial players had their biggest moves of the year Tuesday – Citigroup Inc. shot up 11 percent, JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.
“Investors have a difficult time making decisions about the stock market if they don’t have confidence in major financial institutions, so there’s been a lot of sideline cash,” said Richard Cripps, chief market strategist for Stifel Nicolaus. “The extreme conditions that we’ve seen here over the past few months has been missing that confidence ... but that appears to be changing, and we’re seeing the response.”
Meanwhile, Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 – indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
The Dow rose 391.47, or 3.19 percent, to 12,654.47.
Broader stock indicators also gained sharply. The Standard & Poor’s 500 index rose 47.48, or 3.59 percent, to 1,370.18, and the Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.
The advance was in contrast to a lackluster session on Monday, where stocks managed a moderate gain in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses, marking the worst period since the third quarter of 2002 when Wall Street was approaching the lowest point of a protracted bear market.
Renewed enthusiasm that the credit crisis might be waning was also felt in the Treasury market, where government securities fell as investors withdrew money to take bets on stocks. The 10-year Treasury note’s yield, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Monday.
In addition to hopes about the financial sector, Wall Street was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.
Commodities prices ease
And there was also optimism that commodities prices, which have hit historic highs in recent months, have begun to retreat. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100. Meanwhile, gold dropped back below $900 an ounce.
“This is a nice way to begin the second quarter,” said Todd Leone, managing director of equity trading at Cowen & Co. “All the financials are up big, and there’s a sense that things are turning. We definitely have not seen the last of the credit crisis, but we’re getting closer.”
The stock rally was underpinned by the announcements from UBS and Lehman Brothers that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared heavy losses from investments tied to subprime mortgages would be overwhelming.
Earlier this month, widespread concerns about Bear Stearns’ financial position forced the investment bank to sell itself at a bargain basement price to JPMorgan in a deal engineered by the Federal Reserve – and that stoked fears that other investment houses might follow.
JPMorgan rose $4.05, or 9.4 percent, to $47; while Bear Stearns was up 36 cents, or 3.4 percent, to $10.85 – slightly above the $10 per share acquisition price.
UBS, one of Europe’s biggest banks, said it will issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Investors chose to look past the bank’s announcement that it will take a fresh $19-billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, following an $18-billion write-down last year. Its shares surged $4.21, or 14.6 percent, to $33.01 in trading on the New York Stock Exchange.
Lehman Brothers, dogged by speculation it might reveal losses big enough to cripple the company, on Tuesday raised $4 billion of capital to stymie questions about its financial stability. Lehman rose $6.70, or 17.8 percent, to $44.34.
The Russell 2000 index of smaller companies rose 22.67, or 3.30 percent, to 710.64.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to a heavy 1.70 billion shares. – AP
Chief News Editor: Sol Jose Vanzi
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