Thursday, May 28, 2009

Philippines Economy On The Verge of Recession

. Thursday, May 28, 2009

By stockOzone team

The Philippine economy shrank in the first quarter by its biggest margin in 20 years and the government said it was counting on more rate cuts to avoid a recession, pointing to a central bank meeting later on Thursday.

The central bank however called on the government to step up spending to complement its easier monetary policy as a way to boost an economy analysts said is now unlikely to meet the government's 2009 growth target of 3.1 to 4.1 percent.

The central bank is widely expected to cut its overnight rate for the fifth time in a row later on Thursday to support an economy in which the collapse in global demand has sent exports and imports plunging, and investment and personal consumption into reverse.

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

The government wants the central bank to continue its accomodative policy stance after announcing that gross domestic product shrank a seasonally adjusted 2.3 percent in the first quarter, lower than market estimates for a 1.8 percent fall.

From a year earlier, the economy grew 0.4 percent, short of an expected 2.5 percent expansion. The government revised down fourth quarter data.

The peso slipped to as low as 47.69 pesos per dollar in morning trade from 47.50 at the open and its close of 47.37 on Wednesday.

The government said leading indicators for the May-June period -- which included tourist arrivals and electricity sales -- were down from the previous quarter, a trend which, if sustained, pointed to recession in the current quarter.

"If this trend continues we may slip into recession," said Romulo Virola, secretary general at the National Statistical Coordination Board, which released the GDP data.

TEPID REMITTANCES
The figures suggested that double digit falls in both exports and imports in the first quarter prompted industry, investment and consumption to shrink.

Industry swung from a sliver of growth in the fourth quarter to a contraction of 6.6 percent in the first quarter, seasonally adjusted figures show.

Personal consumption dropped 3.1 percent in the first quarter after growing 1.5 percent in the fourth quarter of 2008.

Song Seng Wun, regional economist at CIMB in Singapore, said weaker consumption would weigh on the economy as remittances sent home by millions of Filipinos working abroad are hit by the worst global downturn in decades.

"With so many Filipinos working abroad, there's certainly a risk that remittances will slow down and therefore the impact of the global recession will feed through to private consumption in the subsequent quarters," he said.

Remittances hit a record $1.47 billion in March, but officials said the global uncertainty meant much of that money is being saved rather than spent.

Central bank Governor Amando Tetangco, expected to cut the main interest rate later on Thursday by 25 basis points to 4.25 percent, said the government should lift spending to help the economy avoid a recession.

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

Virola 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 355 billion pesos ($7.5 billion) in the first quarter was below a target of 361.9 billion.

The trend continued in April, when spending fell to 108.7 billion pesos from 128.6 billion pesos in March, government data showed.

Disclosure: Author does not own any of the stocks discussed here.





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