Asia Pacific region poised for sharp rebound of 7%

MANILA, Philippines - The Philippine economy will grow by 3.5% in 2010, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

ESCAP's forecast is at the higher end of the government's estimate of a 2.6-3.6% GDP growth for this year, fueled by sustained remittances from overseas Filipino workers, and increased government spending.

The country, and other developing economies in Asia Pacific, are forecast to grow by 7% from 4% in 2009. The major drivers will be the strong demand from China and India, whose economies are projected to expand by 9.5% and 8.3%, respectively.

"Around the end of the first quarter, economies bottomed out, with sharp rebound underway for all economies," ESCAP said in a report.

While the Philippines will recover this year, it will be outpaced by Indonesia, which is forecast to grow by 5.5%, Malaysia (5%), South Korea (5.2%), Singapore (7%), Taiwan (4.5%), and Thailand (4%).

The country's growth, however, will be better than Brunei and Myanmar, whose economies will improve slightly by 0.6% and 3.1%.

ESCAP said that even if the region is poised for a major turnaround this year, growth will be fragile and uneven with a lot of downside risks.

It said the Philippines' and its neighbors' recovery is fraught with rising inflationary pressures, asset bubbles and appreciating exchange rates amid an environment of tepid growth. 

The Philippines, in particular, continues to be very vulnerable because its economy hinges largely on exports, and on the remittances of workers abroad.

National Economic and Development Authority Director Dennis Arroyo said workers in the United States with temporary working visas, seafarers in cruise ships, factory workers in South Korea, Taiwan and Macau, and household service workers in Singapore, Macau and Hong Kong, are susceptible to displacement.

Arroyo said that for the country to achieve higher growth, the goverment needs to address long-standing bottlenecks which weaken competitiveness, and for a strong revenue base to ensure inclusive growth.

He added that while the El Nino weather phenomenon is moderate and is expected to last only until June, this will put pressure on food prices in 2010. He said though that the impact  of the El Nino on the overall economy is very minimal.

ESCAP said that for the region to maintain its momentum, it has to veer away from developed markets and instead, exert more efforts in spurring domestic demand.

“Asia and the Pacific is unlikely to be able to return to business as usual. Instead it will increasingly have to drive its own development and create new sources of economic growth from within the region,” the ESCAP added.

Another challenge for policymakers in the region is to balance acts on both monetary and  fiscal policy. It said that while governments will want to tighten monetary policy to  restrain inflationary pressures, they will also need to maintain interest rates at par with global levels and keep their excange rates competitive, while encouraging domestic growth.

"And while they will inevitably have to move toward fiscal consolidation, they will have  to judge the timing and sequnecing carefully if they are not to choke off economic  recovery and trigger the need for further stimulus packages."