Teves: Philippines can weather effects of US recession
By Michelle Remo
Philippine Daily Inquirer
First Posted 23:41:00 01/22/2008
Filed Under: Economic Indicators, Macro Economics
MANILA, Philippines--Calming fears on effects of a possible US recession on the local economy, Finance Secretary Margarito Teves said the Philippines could weather a volatile external environment.
“While a possible slowdown or recession in the US economy could dampen the growth of emerging markets, the Philippines will likely withstand the adverse effects of such a development largely because of its improving economic fundamentals,” Teves said.
He said a better fiscal environment due to a shrinking budget deficit has been gradually placing the Philippines back on the radar screen of foreign investors.
Higher government spending resulting from improved revenue collection also boosted economic growth and offset the ill-effects of external factors, such as lower demand for the country’s exports products. Increase in public spending on infrastructure was credited as one of the country’s major growth drivers last year.
The economy, as measured by the gross domestic product, grew 7.1 percent in the first three quarters of 2007. This kept the economy on track to surpass the official economic growth target of 6.1-6.7 percent last year.
But some feared the Philippines robust growth last year might not be sustained because of the looming recession of the United States, the country’s biggest export market. A US recession is feared to impact on the export sector and drag down the growth of the domestic economy.
But Teves said that while the United States was still the Philippines’ biggest export destination, its share to total earnings of Filipino exporters have dwindled over the years.
From a high of 28 percent seven years ago, the share of the United States’ demand to total export income of the Philippines has shrunk to less than 20 percent, Teves said, noting that exporters have been diversifying their markets.
Analysts also feared that a possible US recession would adversely affect the Philippines’ business process outsourcing (BPO) industry, one of the fastest growing sectors of the local economy catering mainly to US-based clients.
Teves said that while some BPO firms might engage in cost-cutting measures, this did not pose much threat to the Philippines. BPO companies wanting to cut cost actually come to the Philippines because labor is more affordable here.
Low interest rates, also a result of a reduced budget deficit, could also encourage more businesses to pursue expansion plans.
“By continuing to identify and follow through on the appropriate fiscal policies for the country, we hope to underpin the growing strength of the Philippine economy, and to support the critical programs that will alleviate poverty,” Teves said.
Teves said the Philippine government should not be significantly affected by a tightening credit market due to a US recession because it could reduce foreign borrowings and shift credit demand toward domestic sources.
He said 70 percent of the government’s financing requirements would be borrowed locally.
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