Thursday, February 05, 2009 [ manilatimes.net ]
By Maricel E. Burgonio, Reporter
The International Monetary Fund (IMF) has downgraded its projection for the country’s economic growth this year as its major trading partners remain under stress amid the global financial crisis.
In its latest World Economic Outlook (WEO) update, Dominique Strauss-Kahn, IMF managing director, said the Philippines is expected to post a slower gross domestic product (GDP) growth of 2.25 percent this year from its earlier forecast 3.5 percent.
“We are projecting Philippine growth in 2009, on average, to be about 2.25 percent. So it will be less in 2008, but it will be positive, significantly positive,” Strauss-Kahn said.
The country posted a slower growth in 2008 at 4.6 percent, compared with a 31-year high of 7.3 percent in 2007. The growth was mainly driven by domestic consumption fueled mainly by overseas Filipino workers (OFWs) remittances and growth in services such as sustained growth in business process ou-tsourcing (BPO) earnings.
The government has increased its expenditure program this year to fuel economic growth mainly on the back of higher spending in infrastructure and social services.
“And to that extent, we are encouraged that the government continues to have some stimulus. There is some room on the fiscal side, not an awful lot, but there has been approval by Congress of the budget that has some appropriate stimulus,” he said.
The government plans to spend P1.467 billion this year while expects a budget deficit of P102 billion, or 1.2 percent of GDP.
To spur economic growth, IMF expects the Bangko Sentral ng Pilipinas (BSP) to cut further its interest rates due to lower inflation.
“All over Asia, we do see, including the Philippines, that inflation rates in some cases are falling faster than the rate at which interest rates are coming down. So we’re not quite sure where the Philippines fits into the spectrum, but, as a general principle, inflation rates are falling very fast. Therefore, in many places, there remains considerable room for further monetary easing,” he said.
Last week, the BSP reduced its overnight borrowing and lending rates by 50 basis points to 5 percent and 7 percent, respectively.
For the world economy, IMF downgraded its growth projection for this year as the financial markets remains under stress despite the policy measures to provide additional capital and reduce credit risks.
IMF said the global economic growth is expected to decline sharply to 0.5 percent this year compared with its earlier projection of 2.2 percent in November last year.
This incorporates a large downward revision of 1.75 percentage points for both advance and emerging economies.
The advanced economies are expected to suffer recessions, which IMF projects to contract by 2 percent this year while emerging and developing economies are expected to grow by 3.3 percent this year.
In a related development, Hong Kong Shanghai Banking Corp. (HSBC) said it expects remittances to significantly drop this year as the OFWs employed in the production sector, which include construction, will be hit by the global economic slowdown.
“Remittances, after years of heady growth, are likely to fall by at least 20 percent in 2009,” Frederic Neumann, HSBC economist said in its latest report.
Neumann said remittances are expected to slow rapidly, hitting a possible drop of 25 percent year-on-year in the third quarter this year and likely to fall by at least 20 percent for the whole year.
Neumann said the slump in economic activity across the globe is unprecedented and its likely severe impact on remittances would become gradually apparent.
As a result, Filipinos would cut back on household spending which would mainly affect the country’s economic growth this year.
“Given that production-related jobs, which include construction, are more likely to be at risk during the current slump, there is also likely to be a greater impact on aggregate remittances than in previous downturns.
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