MANILA, Philippines?The World Bank has allayed concerns over the impact of the disaster in Japan on economies of its neighbors, including the Philippines, saying any consequence would be temporary and that favorable growth projections should remain intact.
"We expect the economic impact of this disaster on the East Asian region to be fairly short-lived," World Bank regional economist Vikram Nehru said on Monday during the launch of the bank's latest economic update for East Asia and the Pacific.
The World Bank said the immediate adverse impact would be on trade and finance, as the catastrophe might reduce the capability of Japan to import goods from and to extend loans to its neighbors, many of which are the usual recipients of its official development assistance, the Philippines included.
Nonetheless, the bank said the negative effects would be significant only in the first half, and that rebound would likely happen in the second half. This was the reason the World Bank said it was keeping its growth forecasts for most of the countries in the region.
It set its average growth forecasts for East Asia and the Pacific at 8 percent in 2011 and 9.6 percent in 2012.
In the case of the Philippines, the World Bank is keeping its growth projection of 5 percent for 2011 and 5.4 percent for 2012.
Eric Le Borgne, senior economist at the World Bank, said that given this backdrop, the World Bank would suggest that the Philippine government continue with its monetary and fiscal tightening plan.
Le Borgne said the government would not have to adjust its plans to raise interest rates and to reduce its budget deficit just to respond to the potential effects of the disaster in Japan on the Philippine economy.
Prior to the disaster in Japan, the Bangko Sentral ng Pilipinas was expected to start raising key interest rates on Thursday amid rising inflationary pressures brought about partly by increasing demand for goods and services.
The key policy rates of the BSP, which stand at 4 percent for overnight borrowing and 6 percent for overnight lending, have been at historic lows since July 2009.
Moreover, the Department of Finance has set out a deficit-reduction plan, under which it will begin to cut its deficit this year and then continue doing so over the medium term. Last year, the government incurred its highest-ever deficit of P310 billion.
"On the monetary policy side, core inflation has started to accelerate and inflation expectations have started to rise. These call for tightening of monetary policy, which has been accommodating for quite some time," Le Borgne said.
"On the fiscal policy side, there is a call for acceleration of [budget] consolidation. If the deficit is reduced, that will give the government flexibility to accommodate future shocks through higher spending," Le Borgne said.
The World Bank senior economist said a decline in exports of Philippine-made goods to Japan might be seen in the second quarter, thus reducing the country's dollar inflows. But he said Japan would likely increase demand for imported goods in the second half.