By Des Ferriols Updated November 05, 2008 12:00 AM
Swiss banking giant UBS AG has downscaled its 2009 growth projections for the Philippines from 3.5 percent to 1.8 percent, warning that after the financial contagion has subsided, declining trade would drag Asia into recession.
By 2010, UBS said the Philippine economy would recover slightly and post a 3.4-percent growth.
UBS said in its latest investment research that it has lowered its overall growth projection for Asia (excluding Japan) from 6.1 percent to 4.6 percent—its weakest growth in 30 years except during the 1997 crisis.
“Rates would of course fall in that scenario in Asia but our consistent view is that lost income from exports will weaken consumption and investment across the region,” said UBS economist Duncan Wooldridge.
He said, Asia as a whole would recover by 2010 and grow by six percent which was marginally above the 5.5-6 percent range that was normally marked as “recession-like” in the context of Asia’s growth experience.
UBS kept its growth forecast for the Philippines at 4.6 percent for 2008 but downscaled its projection for 2009 putting the country squarely in the middle.
It projected growth to slow down to 2.5 percent in Indonesia (from the original forecast of 4.7 percent) and flat in Malaysia (down from the original three percent.)
These growth rates, according to UBS, would be accompanied by a dramatic decline in inflation rate from its projected 9.4-percent average this year to three percent in 2009 (due to base-effects) and an average of 3.8 percent in 2010.
UBS said the country’s current account balance would drop to 1.7 percent of gross domestic product compared with the original projection of 1.9 percent of GDP for this year.
By 2009, however, UBS said the current account position would rise to four percent of GDP and settle down at 3.6 percent of GDP by 2010.
UBS said exchange rates were also expected to bring the peso at an average of 50 to the dollar this year, strengthening slightly to 48 to $1 in 2009 on through 2010.
UBS had originally projected the peso to rise to 44 to the dollar in 2009.
Interest rates, on the other hand, are expected to be at an average seven percent this year and ease to 6.5 percent in 2009 and 2010.
It said the deterioration of the global financial conditions and evidence of sharper economic downturns across the world economy prompted it is cut its 2009 global GDP growth projections as well.
UBS said it now experts the US and Western Europe to contract in 2009, accompanied by weaker activity in emerging economies. Global GDP is projected to grow by only 1.3 percent, making it the sharpest downturn in the world economy since the global recession in 1981-1982.
By Ted P. Torres Updated April 08, 2009 12:00 AM
MANILA, Philippines – Economic growth in the Philippines is expected to further slow to 1.9 percent this year, marking its worst performance since the Asian financial crisis more than a decade ago, the World Bank said yesterday.
“Growth in 2009 would likely slow to 1.9 percent,” the World Bank said in its latest East Asia report, adding it would be the country’s slowest growth since 1998 when the economy contracted by 0.6 percent.
World Bank senior economist Eric Le Borgne said a series of negative developments over the last four months forced a lower outlook for growth in the region, including the Philippines, as weak global demand for the country’s goods and services slowed down consumption and investments.
“There are also strong indications that the anticipated recovery for 2010 has diminished,” Borgne said, adding that a 2.8-percent growth for the Philippines next year remains dependent on how the developed countries deal with the global recession.
The World Bank projection compares to forecasts of 2.5 percent by the Asian Development Bank and 3.5 percent by the International Monetary Fund.
The government’s own forecast is a 4.4-percent growth in gross domestic product (GDP), down from 4.6 percent last year and 7.2 percent in 2007 – the fastest pace in 30 years.
The Arroyo administration said it plans to achieve the 4.4-percent rate through massive government spending to take up the slack of reduced economic activity.
The World Bank attributed the weak 2009 economic outlook to two main culprits: the country’s vulnerability to a slowdown in the amount sent home by Filipinos working abroad and an ambitious size of the stimulus package, which could have a limited impact and be undermined by weak tax collections.
“Domestic demand, boosted to a large extent by strong remittances since 2001, has been the most important growth driver for the economy,” the report said.
Last month, the World Bank said money sent home by overseas Filipino workers (OFWs) will contract by 4.4 percent this year as a result of the global slowdown, lower than the bank’s projected five to eight percent fall in remittance flows to developing countries. The latest outlook was also bleaker than the previous forecast of 0.9 to 5.7 percent the World Bank made in November last year.
But the Bangko Sentral ng Pilipinas (BSP) is more optimistic. It said remittances are likely to stay flat in 2009 at around last year’s level of $16.4 billion. In January, the BSP reported a 0.1-percent growth in remittances compared to the same period last year.
The multilateral lender likewise described the government’s P330-billion stimulus package (labeled the Economic Resiliency Plan or ERP) as “ambitious” since it accounts for 4.1 percent of the country’s GDP.
The ERP is focused on providing jobs, even if temporary, to those who are displaced as their employers, whether here or abroad, close shop or reduce operations as worldwide sluggish consumption and credit flows squeeze their ability to stay afloat.
The World Bank cited the government for postponing its medium-term balanced budget goal in 2011 to make way for the hiked spending. It noted, however, that the actual impact of the stimulus package in 2009 would be limited as government spending plans could be undermined by a huge budget deficit, no thanks to lower-than-target tax collections.