The Philippine government is optimistic that prospects for 2012 and the near term are positive, given the current performance and significant developments in the local and global economies.
Socio-economic Planning Sec. Cayetano Paderanga, Jr. stressed that there are several factors for this optimism — holiday season spending, increased business and consumer confidence, a more stable macroeconomy, and steady consumer sentiment.
“We will also experience the full implementation of the P72 billion disbursement acceleration program of the government
in 2012,” said Paderanga.
Public construction and government consumption and services are likely to pick up in the coming quarters due to quick
releases and faster utilization of the program.
As of November 8, 2011, the Department of Budget and Management has already released PP43.4 billion or 60.2 percent of the total program cost.
NEDA has identified measures to boost exports such as diversification of exports and policies for closer integration with
fast-growing ASEAN economies.
“The economic managers have already asked our export promotion people for more complete programs that the cluster can recommend to Malacanang for funding.”
The services sector is expected to support growth, particularly real estate. Production in the agriculture sector will be boosted by the implementation of the Food Staple Self-Sufficiency Roadmap for 2011-2016.
Private consumption will be driven by increased spending of households in the year-end, particularly on items related to food and utilities.
Spending will be supported by broadly stable commodities prices and consumer sentiment indicates more optimism for 2012, said Paderanga.
The domestic economy grew by 3.6 percent in the first three quarters of 2011, lower than the 8.2 percent growth in the same period last year.
Sec. Paderanga noted that the country’s growth in 2011 was affected by the global economic slowdown amid uncertainties in Europe, continuing weakness of the US economy, and disasters in Japan, which led to weak exports.
The domestic growth was weakened by the contraction in the construction sector, which was pulled down by lower government spending, given the process improvements and project reviews for public construction projects.
On the supply-side, the services sector remained the largest contributor to growth in the first three quarters of 2011 with a 4.7 percent expansion.
Agriculture production has been sustained as the sector continued to recover from the El Niño in 2010 and despite the typhoons in the third quarter that caused losses and damages in the sector.
The industry sector decelerated to 1.4 percent as the decline in construction and utilities weighed down the sector’s growth.
On the demand side, growth was driven mainly by household expenditure boosted by consumer confidence, manageable growth in prices of basic commodities and sustained inflow of remittances from overseas Filipinos.
Total exports declined by 3.7 percent due to slow pickup from the supply-chain disruptions caused by disasters in Japan, weaker demand from major trading partners that are currently experiencing economic slowdown,
and currency appreciation.
Signs of recovery
Despite recent relatively slow economic performance, FMIC and UA&P Capital Market Research said the economy has showed signs of recovery amid the continued appreciation of the peso.
Inflation rate will return to below-5% pace for the rest of the fourth quarter of 2011 as a stable weather condition would normalize food prices on top of the declining fuel pump prices.
The report noted that dollar remittances form overseas Filipino workers (OFWs) would continue to be robust during the Christmas season with a full year remittance growth forecast at 6-8%.
FMIC and UA&P expects the peso-dollar exchange rate to be contained even with the instability of the global market given that the Philippines has a high foreign exchange reserve.
The government would keep its high-spending ways to stimulate the economy as fiscal deficit for 2011 would hit P180 billion.
Key policy rates would likely be reduced in the first quarter of 2012 as inflation rate would decelerate further at the same time that advanced economies continue to hobble.
Multinationals trim growth forecast
The Asian Development Bank (ADB) has projected a 4.8 percent growth of the country’s gross domestic product (GDP) in 2012 from the expected 3.7 percent growth in 2011.
The Philippine government has maintained its gross domestic product growth (GDP) forecast of 4.5 to 5.5 percent for 2011 and 5 to 6 percent in 2012.
ADB expects economic growth to ease this year and remain close to levels in 2012.
Differences will depend on openness to trade and capital investments as well as the capacity of domestic demand to sustain growth.
Economic growth in emerging East Asia will continue to moderate into 2012 as growing sovereign debt problems in Europe and an anemic US economy raise the spectre of a deep global economic downturn.
“In the event that both the eurozone and the US economies contract sharply, the impact on emerging East Asia would be serious yet manageable, the ADB report said.
“The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia; so the region’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,” said Iwan J. Azis, head of ADB’s Office of Regional Economic Integration.
Meanwhile, the World Bank (WB) is expecting economic growth to moderate at 3.7 percent in 2011, weighed down by weak global demand as well as low public spending in the first three quarters of the year.
“Our projection hinges on the successful implementation of the government’s disbursement acceleration program and an acceleration in private consumption and investment, which have begun to grow faster in the last quarter,” WB country economist Karl Chua.
Growth in 2012 is projected to improve to 4.2 percent in line with regional forecasts. Higher 2012 growth hinges on improvement in exports, acceleration of public-private partnership (PPP) projects and private sector investment, and a full recovery of public spending.
Chua noted that the government is instituting important measures to improve transparency and accountability in public spending. Once these institutional reforms are in place, spending is expected to fully recover at cost-effective levels with more resolute impact on the country’s growth and development, Chua added.
Growth prospects for the Philippines and the Asean region are constrained by global uncertainties and by the impact of natural disasters.
“The slow progress towards the resolution of the debt problems in the Eurozone has intensified investors’ concerns over global growth and stability.”
“As capital flowed out of emerging markets into relatively safer havens, portfolio investments were reversed and stock markets lost value in East Asia,” the WB report said.
However, improving the investment climate in the Philippines through measures such as upgrading infrastructure to attract private investments will help the country ride out the global turbulence brought about by the Eurozone crisis and the fiscal woes of the United States.
The WB report maintains that the Philippines is well-positioned to cope with any new financial shock that might evolve from the current global turmoil.
“The country is well-insulated from the global financial crisis owing to a significant improvement of macroeconomic fundamentals and regulatory reforms already in place following the Asian financial crisis of 1997-98.”
However, the OECD Southeast Asian Economic Outlook predicted a higher growth for the six Southeast Asian economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam — at 5 percent for 2011 and 5.6 percent in 2012.
The OECD report noted that global uncertainties and natural disasters shed a negative light on the growth prospects of the region as the overall Southeast Asia will have a solid growth performance through 2016.
As growth in external demand moderates for the region, ASEAN economies are turning towards domestic drivers of growth in the medium term and are beginning to explore ‘green growth’as an alternative strategy for long-term sustainable development.