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On the brink of recession

GDP contracts 2.3% in Q1, grows 0.4% from year-ago

[ ] May 29, 2009


The economy shrank 2.3 percent in the first quarter, the worst in 20 years, suggesting aggressive easing of credit and stepped up spending announced by the administration have failed to counter the impact of the global economic slowdown.

From a year earlier, the economy, however, posted a growth of 0.4 percent.

The quarter-to-quarter downturn even as there was a marginal year-to-year increase has triggered a debate on whether the economy is already slipping into a recession.

A recession is commonly defined as two successive quarters of contractions. With May-April key indicators showing a further weakening, a second quarter contraction is seen as certain, pointing to an inevitable recession.

But if yearly change is taken as the basis, then it is premature to talk of a recession.

Splitting hairs on recession aside, officials conceded the January to March figures were disappointing.

The Monetary Board further cut rates late yesterday afternoon in a bid to further perk up demand. Rates have been repeatedly cut since December, for a total of 1.75 percentage point to the current 4.25 percent.

"Loosening monetary policy will help clearly," Planning Secretary Ralph Recto told reporters.

The government is looking forward to growth of between 3.1 and 4.1 percent this year, a target that likely will be missed.

While monetary authorities are expected to accommodate the administration’s wish, they feel easing credit alone will not work.

"The challenge to public policy is to accelerate public spending as monetary policy has been accommodative since late 2008," Bangko Sentral Gov. Armando Tetangco said in a text message.

Romulo A. Virola, National Statistics Coordination Board (NSCB) secretary general, also suggested that the data showed the government could do more.

Government consumption rose 3.8 percent in the first quarter from a year earlier, picking up modestly from 2.6 percent in the fourth quarter, but public construction slumped 4.4 percent.

"The pump priming that had been planned in response to the global crisis obviously has not taken place," he said.

Government spending of P355 billion in the first quarter was below a target of P361.9 billion.

The trend continued in April, when spending fell to P108.7 billion from P128.6 billion in March, government data showed.

Overseas remittances continued to be a major factor in propping up the economy as net income factor from abroad pushed the gross national product growth to 4.4 percent.

The 4.4 percent growth, however, was smaller than the 6.4 percent expansion in 2008.

On the output side, agriculture sector posted a 2.1 percent growth compared to 2.8 percent last year; the industry sector contracted by 2.1 percent compared to a previous 2.7 percent expansion; while services sector grew by 1.4 percent compared to a 5.2 percent growth last year.

Virola said that this was the fourth consecutive quarter that the services sector, which comprises more than half of the total economy, posted slower growth.

The expenditure side saw personal consumption, which accounts for nearly 70 percent of the total expenditures in the economy, posting an 0.8 percent growth compared to 5.1 percent the previous year.

Recto said low growth was to be expected given the present crisis, which also saw neighboring economies suffering a "sharp slowdown."

"The Philippine economy, along with those that are rich and poor, continues to bear the brunt of a troubled global economy. Preliminary data show that some of our neighbors experienced a similar sharp slowdown due to a deeper global crisis... Other Asian countries were worse as their economies contracted. Taiwan by 10.2 percent, Singapore by 10.1 percent, Hong Kong by 7.8 percent, Thailand by 7.1 percent, South Korea by 4.3 percent and Malaysia by 6.2 percent," he said.

Recto said that given latest growth figures, he feels "less confident" that the government target growth of 3.1 - 4.1 percent growth will be achieved.

Meeting the target requires "harder work" and succeeding growth should be between 4.1 and 5.4 percent, he said.

"This might be revisited by the Development Budget Coordinating Committee," he added.– With Reuters


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