AUGUST 28, 2009
(STAR) The Philippines escaped a recession after posting marginal growth in the second quarter, officials and analysts said on the eve of the release of the official income accounts today.

“The Philippines is not going into recession. We will still exhibit positive economic growth for the whole year of 2009,” Augusto Santos, newly named National Economic and Development Authority chief, said yesterday.

“Yes, we agree that the second quarter will be better than the first quarter’s,” Finance Undersecretary Gil Beltran said.

NEDA earlier said that at worst the economy would contract by 0.1 percent in the second quarter and at best it would expand by 0.9 percent on an annual basis. In the first quarter, year-on-year growth was at 0.4 percent.

A Reuters poll on Monday gave a second quarter 2 percent growth quarter on quarter, a reversal of the 2.3 percent contraction during the first quarter.

Two successive quarters of contraction signal a recession.

“The global and Philippine economies appear to have bottomed out in the second quarter and we expect a rebound in the third quarter,” Santos said.

The government expects growth to weaken to 0.8 to 1.8 percent this year, the slowest pace in at least eight years, as the economy feels the pinch of the global downturn.

The central bank had cut rates by a total 2 percentage points from December to July to support growth.

It ended its easing cycle last week by keeping key rates steady at a record low of 4 percent, and signaled it may maintain a neutral stance until signs of strong sustainable growth become more evident.

Beltran said growth was driven by higher government spending and continued growth in the flow of overseas workers’ remittances.

“National government expenditure rose by 21.6 percent in the second quarter relative to 16.4 percent in the previous quarter,” Beltran said.

Government accounts for around 20 percent of consumption spending.

At the onset of the global economic slowdown, the government allotted P330 billion as part of a stimulus program to help the economy ride out the financial storm.

“Remittances from OFWs rose by 3.1 percent in the second quarter compared to only 2.7 percent in the previous quarter,” Beltran said.

Money sent home by overseas Filipinos coursed through banks reached a record high of $1.5 billion in June 2009, posting a year-on-year growth of 3.3 percent.

This brought cumulative remittances for the first half of the year to $8.5 billion, a 2.9 percent increase from the year-ago level.

BSP said remittances remain a key driver of the economy, as these give recipient families extra money to spend.

Analysts, however, are worried that despite higher remittances, consumer spending remains flat. They speculated that recipients are saving their money in anticipation of harder days ahead.

Beltran also said better corporate earnings were recorded in the second quarter.

A survey of 80 large local corporations showed a 6 percent rise in net income in the first half, he said.

Analysts at Metrobank said consumption appears to have not picked up despite the growth in remittances.

Ildemarc Bautista, Metrobank research head, said:

“Our expectation is a flat growth. We’re somewhere around NEDA’s projection of between -0.1 to 0.9 percent growth, though ours was at 0.1 percent, presuming that consumption didn’t pick up,” he said.

“But we are not discounting a surprise and if ever there was one, we are bound to upgrade our outlook for the full year,” he added.

Metrobank said “it is deeply troubling” to see private consumption dipping while OFW remittances have been reaching record highs.

“One scenario is that out of the money that is being sent home, more is being saved rather than spent,” he said.

Metrobank said that this can explain poor GDP growth while prices of financial assets are rising.

The trouble, it said, is that as more and more people save, less and less money is spent, bringing down GDP and further providing incentives to save more in what is called the “paradox of thrift.”

The bank said that perhaps “the new deployments are not causing any appreciable marginal increases in spending” because the nature of the deployment itself.

“This is true, for example, for those deployed in the Middle East against, say, one deployed in the US or Europe. While there may be appreciable marginal remittances, there may not be new spending over what was being spent before the deployment. It is even possible that spending may even be less than before the deployment, since the demographics of the newly deployed might be such that these may now be spending abroad what used to be counted locally,” it added.

Chief News Editor: Sol Jose Vanzi

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