LONGER-TERM ECONOMIC WEAKNESS SEEN
MANILA, AUGUST 30, 2008 (STAR) By Des Ferriols - The drastic slowdown in private consumption in the second quarter of this year suggested a further and probably longer-term economic weakness.
Despite record-high remittances from overseas Filipino workers (OFWs), economists said an increasingly anemic consumer spending, among other factors, would trim the country’s economic growth to 4.6 percent this year and 4.4 percent in 2009.
Although the country’s second quarter economic slowdown was not surprising, economists said the details of the national income accounts indicated potentially lasting economic slowdown.
Economic growth was recorded at 4.6 percent in the second quarter and the National Economic and Development Authority (NEDA) also revised its first quarter report, showing that the economy expanded only by 4.7 percent and not 5.2 percent.
“This suggests that the overall economic trajectory remains weaker than initially thought,” said Hongkong and Shanghai Banking Corp. (HSBC) economist Frederic Neumann.
According to Neumann, the details of NEDA report also indicated a further economic weakness despite the 7.7-percent increase in exports during the period.
Neumann said exports are unlikely to sustain this growth pace especially since imports in the second quarter actually contracted by one percent as a result of slowing global demand growth.
“Meanwhile, private consumption spending—long the main support pillar of the economy—slowed sharply from 5.2 percent year-on-year to 3.4 percent,” Neumann said.
Neumann said fixed investment growth rebounded from four percent last year to 14.7 percent but said this might be a reflection of increases in inventories. Durable equipment spending, which he said was a better gauge of underlying investment trends, slowed from 8.6 percent to four percent.
Public consumption was also low, contracting by 5.1 percent after increasing by only1.9 percent in the first quarter of the year. This resulted from the government’s persistent problems with the absorptive capacity of its implementing agencies.
“Over the second half, fiscal expenditure should become far more supportive of economic growth but is unlikely to entirely offset the drag from slowing exports and private consumption,” Neumann said.
“We therefore continue to expect economic growth to slow,” he added.
Taking the cue from NEDA’s second quarter report, UBS said it was also revising its projected gross domestic product estimates this year from 5.3 percent in 2008 and 4.6 percent in 2009.
According to UBS economist Edward Teather said UBS’ real GDP growth forecasts have been revised to 4.7 percent and 4.5 percent for 2008 and 2009, respectively.
Teather said the BSP focused exclusively on inflation and inflation risks in the accompanying policy statement after signalling that it expected 11.8 percent to 12.6 percent inflation in August after a 12.2 percent growth rate in July.
Beyond rising inflation rate, however, BSP Governor Amando M. Tetangco Jr. said slowing regional trade would temper this year’s economic growth but said growth would be sustained at a “respectable level” in 2009.
Economic officials have blamed high inflation for the expected slowdown in growth this year but Tetangco said the more significant factor was the slowdown in trade between Asian countries.
“We have to consider regional trade and investment activities that make the region a lot less dependent on the US economy,” Tetangco said. “In that sense we are insulated.”
However, Tetangco said the increase in regional trade itself had been due to the robust trade in raw materials for products that were processed in certain Asian countries and ultimately end up in the US market.
“So in that sense there is no total delinking,” he said. “We still will be affected by the US slowdown although the impact will still be less than it could have been several years ago.”
Tetangco explained that demand would naturally react to inflation pressures since rising prices meant that consumers would be able to buy less for their money. “It erodes our purchasing power,” he said.
Chief News Editor: Sol Jose Vanzi
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