HK bank sees 3.9% GDP, bleak 2008 for RP

MANILA, Philippines- Hong Kong-based brokerage and investment group CLSA Asia-Pacific Markets has painted depressing scenario for the Philippine economy, which it sees growing by only 3.9 percent this year from 7.3 percent last year due to weak export earnings and remittances from overseas Filipinos.

In a weekly economic commentary entitled “Manila Oblivion," CLSA also blamed galloping inflation for their bleak forecast.

“We are less sanguine, forecasting 3.9 percent growth this year and 3.4 percent in 2009, after 7.3 percent growth last year," the investment bank said. The 2007 GDP growth was the fastest achieved in 31 years.

CLSA's GDP growth forecast is way below the government target of between 6.3 percent and 7 percent expansion for 2008.

“We expect economic growth to moderate this year on the back of slowing remittance inflows, weakening export demand and as rising inflation bites in to real spending," it added.

Robust economic growth last year, CLSA said, could be attributed to the six percent growth in consumption due to the record $14.3 billion remittances from overseas Filipinos. With the world economy slowing down and prices of consumer products rising fast, the investment firm said the factors propping up the country's economy will significantly diminish.

The investment bank said Philippine remittances are more vulnerable despite growing 15 percent in the first two months of the year as bulk of the overseas jobs are in pro-cyclical sectors and about 50 percent are in the United States.

Furthermore, it warned that rising inflation due to higher oil and food prices is eroding purchasing power. Inflation swelled to a 20-month high of 6.4 percent in March from 5.4 percent in February due to rising oil and rice prices.

“The rise in inflation due to rice prices bears close watch though not only because of the adverse implications for consumer spending but also government finances," CLSA said.

The investment bank sees the state-run National Food Authority (NFA) losing between P40 billion and P50 billion this year due to the rice crisis putting more pressure on the government’s commitment to balanced the budget this year.

“There will be fiscal slippage this year even though the budget deficit ended at a decade low of 0.2 percent of GDP last year. Growth in tax revenues are slowing and privatization proceeds are likely to be smaller this year," it warned.

Due to rising inflation, the investment bank sees the Bangko Sentral ng Pilipinas (BSP) slashing the overnight borrowing and lending rates by 25 basis points this year. The central bank kept overnight borrowing rate at 5.0 percent and lending rate at 7.0 percent the other day.

Likewise, CLSA pointed out that export growth of the Philippines is past the peak as exports in terms of volume are softening due to the economic slowdown in the US – the country’s major export market. - GMANews.TV

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