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FROM an
expected growth of 6.4 percent this year in terms of the
gross domestic product, the Philippines was seen to
expand at a slower 5.5 percent instead, the Asian
Development Bank (ADB) said on Tuesday.
This
revised rate is within the range of expansion rates seen
for members of the original six nations that formed the
Association of Southeast Asian Nations, or Asean, but it
is a bit faster than Malaysia’s anticipated growth of
only 5.4 percent or Thailand’s 5 percent.
Philippine economic managers have also scaled back their
growth projections, now ranging from 5.7 percent up to
6.5 percent versus last year’s actual growth rate of 7.3
percent.
The ADB
said the weakening global demand for exports, as well as
high rice and fuel prices that threaten the growth of
consumer spending, have forced it to revise the growth
projections.
Further,
the Asia Economic Monitor (AEM) said inflation in the
Philippines will likely reach 7.2 percent in 2008 and
5.3 percent in 2009. The Bangko Sentral ng Pilipinas (BSP)
and the National Economic and Development Authority (Neda)
agree that inflation may likely hit anywhere between 7
percent and 9 percent.
The ADB
also said most central banks, the BSP included, were
“behind the curve” in responding to high inflation.
“There are growing signs that inflation expectations are
beginning to drift, with second-round price effects
beginning to burrow through the region’s economies.”
BSP
Governor Amando Tetangco Jr. has since disputed this,
saying no one, not the credit-rating agencies or even
the International Monetary Fund (IMF), could have
predicted the virulence or length of the price surges.
“Control
of inflation is at the very top of BSP’s policy
priorities. The decision (lifting the policy rates by 50
basis points on Friday) showed our readiness and
commitment to bring inflation towards its desired path,”
said Tetangco.
He has
promised to bring inflation “closer to the range of 3
percent to 5 percent for 2008 and range of 2.5 percent
to 4.5 percent for 2009.”
Inflation already averaged 11.4 percent in June but
should still be in single digits, ranging from 7 percent
to 9 percent this year, he added.
Manila’s
continued expansion should also be quicker than that of
the newly-industrialized economies except that of
China’s.
According to the ADB, Hong Kong and Singapore were to
grow by only 4.9 percent this year, South Korea by 4.7
percent and Taiwan by 4.5 percent.
This
will prove to be the region’s slowest growth rate in
five years and comes on the heels of accelerating
inflation driving down consumer spending, particularly
in the United States—and that slows down exports, the
ADB said.
The AEM
agrees. “For the Philippines, the outlook has weakened
on the deteriorating external environment—softer global
demand for exports and soaring rice and fuel prices
dampen consumer spending.”
Apart
from the dim economic conditions being experienced, the
AEM said that growth, though solid, is still vulnerable
to harmful risks this year and in 2009. This is
particularly true for emerging East Asia economies,
which includes the Philippines.
“Emerging East Asia’s still-solid growth outlook is
vulnerable to three potentially harmful risks
higher-than-expected inflation, a sharper or protracted
economic slowdown in the United States, and another bout
of global financial turbulence,” the AEM stated.
In a
statement, the ADB warned that core inflation, which is
a measure of a price increase that excludes food and
energy costs, is also rising across the region. This,
the bank said, showed that a more broad-based
second-round price effect may be under way.
Inflation is also expected to rise in the region to an
average of 6.3 percent, more than double the rate of the
past 10-year average inflation. This, the ADB said, has
serious implications as the average household in the
region spends over 50 percent of its monthly expenditure
on food and fuel.
“Rising
inflation is a serious threat to the region’s sustained,
strong growth as high import costs of food and fuel
threaten to trigger a price/wage spiral, unleashing more
inflation,” said the ADB’s Office of Regional Economic
Integration chief Jong-Wha Lee said in a statement.
The AEM
also said a sharper slowdown in the US economy could
start a greater global economic downturn that can
further disrupt growth for emerging East Asia; and that
the US housing market and broadening credit turmoil are
already spilling over into the business sector and
affecting economies.
This
could have, the AEM stated, dangerous ramifications on
global financial markets, which could dampen domestic
demand in many advanced economies and emerging East
Asian economies.
The US
remains an important source of demand for many emerging
East Asian exporters. In the Philippines, based on the
latest export figures released by the National
Statistics Office, the US was the country’s top market
in May 2008 with exports of $675.59 million accounting
for 16 percent of the country’s aggregate income for the
month, or a modest increase of 2.7 percent from $657.60
million in May 2007.
The AEM
said that despite the fact that tightening has already
been done by monetary authorities in the region, many
are still behind due to country-specific constraints and
the deteriorating external outlook.
“A
flurry of announcements of subprime-related losses
continues to infect broader financial markets. Although
reported losses on subprime exposure are slowly winding
down, massive writedowns have weakened balance sheet
positions for many large global banks and the
de-leveraging process at financial institutions is still
under way,” the AEM stated.
“The
risk of inaction is rising, and the region’s monetary
authorities need to formulate more forceful and
preemptive policy responses,” the AEM stated.
Specifically for the Philippines, Indonesia, Korea,
Malaysia, and Thailand, the AEM said their governments
should maintain prudence in the face of still high
public debt-to-GDP ratios.
The AEM
also cautioned that while implementing administrative
controls to tame inflation may seem to be an option,
artificial price-fixing and subsidies can breed bigger
problems in the future. Many of the region’s economies
have adopted measures to cap domestic price increases,
including subsidies.
The AEM
said deeper and more comprehensive structural reforms
are needed to upgrade the investment climate in several
emerging East Asian economies.
“With
the external sector currently slowing, weaknesses
hindering business investment—such as policy
uncertainty, poor governance, ineffectual legal and
institutional frameworks, and a weak regulatory
mandate—stand out much more,” the AEM stated. |
