World Bank: Economies of RP, Asia to recover in 2010
by JESUS F. LLANTO, abs-cbnNEWS.com/Newsbreak | 12/10/2008 5:05 PM
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The World Bank (WB) expects the Philippines and other East Asia and Pacific economies to post slower 2008 growth rates, skid further in 2009, before exports pick up and credit and investments start flowing again in 2010.
In its Global Economic Prospect (GEP) 2009 report released Wednesday, the World Bank said the Philippines will grow by only 3 percent in 2009, slower than its 4 percent forecast for this year.
These projections are lower than the Philippine government's own economic growth targets of between 4.1 to 4.8 percent this year, and 3.7 and 4.7 percent in 2009.
World Bank's projections showed the Philippines lagging behind peer countries' growth prospects in 2008 up to 2010.
This year's 4 percent growth forecast for the Philippines is lower than South East Asian countries, like Thailand (4.6 percent), Malaysia (5.5 percent), Indonesia (6 percent).
Even previous laggards in the neighborhood, like Vietnam (6.5 percent), Lao (7 percent), and Cambodia (6.7 percent) will also slowdown in 2008, but their growth rates still outpace the Philippines'.
It would be the same case in the World Bank's 2009 growth forecast for the Philippines. The country's 3 percent growth will again be slower than the others: Thailand (3.6 percent), Malaysia (3.7 perrcent), Indonesia (4.4 percent), Vietnam (6.5 percent), Lao (6 percent), and Cambodia (4.9 percent).
Fiscal situation
World Bank noted that the Philippine's real gross domestic product (GDP) already slowed to 4.6 percent in the first nine months of 2008, almost halving the 7.2 percent three-decade record growth rate in 2007.
Steep increases in food and fuel prices, influenced by price hikes in the global market, deeply hurt household incomes. When households held back on spending, this slowed the pace of expansions in private consumption.
Government's own consumption and investment were likewise sluggish in the first six months of the year. But even as these improved significantly in the third quarter, the global slowdown has already taken a toll on foreign buyers' demand for local products, especially electronic items. Foreign investment slowed, too.
Nonetheless, the report expected the Philippine economy to remain resilient, stressing that the direct impact on the Philippine banking system from the turmoil has been marginal.
Mr. Eric Le Borgne, World Bank's senior economist for the Philippines, noted that overall exposure to structured products is estimated at about 2 percent of banking assets.
Le Borgne stressed, however, that the Philippines need to protect the sustainability of its fiscal sector. "The markets' continuously shifting assessment of how the country can finance its higher overall fiscal deficit and its maturing obligations implies a significant premium in having a fully controlled fiscal expansion.
"Alongside its extra spending on infrastructure and targeted social safety nets, the government needs to have revenues firmly under control," he added.
Recovery in 2010
By 2010, when the 11-country East Asia and Pacific region is expected to recover, Philippine growth is forecast to rise to 4.1 percent in 2010.
On that year, Fiji is expected to grow by 3 percent, Vanuatu by 5.2 percent, Thailand by 5 percent, Vietnam by 7.5 percent, and China by 8.5 percent.
The report forecasted that the region will post a 7.8 percent average growth by 2010 due to upturns in foreign markets that will boost exports and production.
World Bank explained that the slower investment growth in the region in 2008 and 2009 is expected to spill over into weaker production, employment, household spending and gross domestic product (GDP) growth.
These will constrain developing East Asia to an overall 8.5 percent growth rate in 2008, 6.7 percent in 2009, as the impact of the financial crisis reaches the region, the latest economic update of the World Bank said.
Developing East Asia includes the China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea and the island economies in the Pacific.
Weak 2009
The GEP 2009 said that the 6.7 percent real GDP growth of the region next year is the weakest since the dotcom recession of 2001 and the East Asia crisis of 1997-1998.
"The 6.7 percent is not as good as it sounds because a huge part of it is China," Vikram Nehru, World Bank's regional chief economist in the East Asia region told reporters.
The GEP said that the ripples of the financial crisis are now being felt by the region.
"The region was spared significant fallout during the early stages of the financial crisis in 2007, because outside of China, holdings of securities backed by US mortgages were quite small," it said. "With the intensification of the crisis, effects within the region are spreading."
The latest six-monthly assessment of the region said that while the East Asian countries are better prepared than they were for the 1997 Asian financial crisis, none of them is immune to the impact of the global economic financial crisis.
"While decline in oil and food prices will support external positions and provide some relief in the inflation front, reduced investment spending is expected to contribute to a substantial slowdown in regional growth to 6.7 percent in 2009," the report said.
Ivailo Izvorski, lead economist in the East Asia region of the WB, said that the counries that will be worst hit are those that are most reliant on external demand and those that have small domestic sector.
Regional export volumes, the report added, are expected to fall from 8.3 percent in 2008 to 2.6 percent in 2009 while investment is expected to ease to 7 percent.
Remittances
Le Borgne said the Philippines' experience of a "sharp slowdown" in economic growth would make the global financial crisis all too real as the employment prospects tighten.
Unemployment and underemployment, he added, could rise significantly while there is a pressure to sustain the strong flow of remittances.
The Philippines has been receiving huge amounts of remittances from around 8 million overseas Filipino workers. In September 2008 alone, total remittances reached US$1.3 billion or 17 percent higher than September 2007.
Ivailo Izvorski, WB's lead economist in the East Asia region, said that the Philippines has an "interesting situation" when it comes to remittances.
Some experts are saying that remittances will fall as a result of recession in countries hosting large number of OFWs like the United States, Japan and Europe.
"Migrants are struggling to maintain the flow of funds to their families," said Izvorski.
Silver lining: BPO
Le Borgne, meanwhile, said that among the sectors that will continue to sustain its growth amid the slowdown is the business process outsourcing (BPO) industry.
"The BPO sector could be one of the beneficiaries," Le Borgne said.
The BPO industry is considered as one of the sunshine industries in the country. In 2007, it generated US$4.9 billion revenue and provided jobs to 300,000 Filipinos.
Industry experts are saying that the US recession would result in more BPO investments since more companies would cut costs by outsourcing some of their functions to cheaper locations like India and the Philippines.
