ADB downscales RP growth forecast
Des Ferriols
Philippine Star
The Asian Development Bank (ADB) has scaled down its economic projection for the Philippines amid slowing exports, soaring prices and deteriorating external conditions.
In its 2008 Asian Economic Monitor, the ADB said growth in the country’s gross domestic product (GDP) this year would slow down to 5.5 percent from the original projected growth of six percent.
By 2009, the ADB said GDP growth would be largely unchanged at 5.6 percent, but this was by far slower compared with the original projection of 6.2 percent.
The ADB said in general, economic expansion in three of the big four ASEAN economies is expected to moderate. Aside from the Philippines, the economies of Malaysia and Indonesia are also expected to slow down.
Clouding over the country’s growth prospects, according to the ADB, would be soaring inflation rate that the multilateral financing agency said would go up to as high as 7.2-percent average for the whole year in 2008 and to 5.3 percent in 2009.
In April, the ADB projected the country’s inflation to average at four percent this year and 3.6 percent in 2009.
The ADB’s inflation outlook, however, was far more optimistic than the Philippine central bank which projected the rate to average between nine and 11 percent this year and to range at six to eight percent.
The ADB said its outlook for the Philippines has weakened on the deteriorating external environment which resulted to softer global demand for exports and soaring rice and fuel prices to dampen consumer spending.
As economic growth continues to slow in industrialized countries, the ADB said external demand for emerging East Asian exports is also expected to soften.
Also, the ADB said the spike in inflation in these countries is expected to directly affect consumer spending, reducing demand for household goods produced within the region – such as consumer electronics.
However, the ADB said that despite the slowdown, emerging East Asia is expected to see solid growth as it weathers the current global economic headwinds relatively well.
But the ADB said soaring global food and oil prices also implied adverse terms-of-trade effects for the region’s net importers, resulting in a significant loss of income and narrowing current account surpluses.
“The onslaught of global food and oil prices has led to a terms-of-trade shock in many emerging East Asian economies, particularly those that are net importers of food and fuel,” the ADB report said.
The ADB said the impact was already evident in terms of real income loss, slowing consumption and investment, narrowing trade balances and depreciating currencies.
As currencies depreciated, the ADB said the negative terms-of-trade effect is unlikely to reverse and might actually intensify over at least the next eight months.
The ADB said any permanent deterioration in the terms of trade would soften consumption and investment demand while hurting labor markets. This would force macroeconomic managers to adjust accordingly.
The ADB added the country’s aggregate current account surplus is expected to narrow, even closing to balance as the surplus would be eroded by rising import costs and depreciating peso.
– With Ted Torres
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