‘Dutch Disease’ seen slowing growth
Philippine Daily Inquirer
First Posted 01:35:00 03/13/2008
Philippine economic growth will fall sharply this year due to an overvalued peso and businesses who fail to reinvest their profits, a think-tank said Wednesday.
After the gross domestic product (GDP) struck a 31-year high with growth of 7.3 percent in 2007 and with inflation at a 20-year low of 2.8 percent, the Philippine Institute of Development Studies said growth would slow down this year to 5.9 percent and inflation would rise to 5.2 percent.
Institute president Josef Yap, said the Philippines was suffering from “Dutch Disease,” characterized by a shrinking manufacturing sector and a sharply appreciating currency.
“That’s a sign of trouble ahead,” he said.
“There indeed will be a slowdown,” though growth “will still be a respectable 5.9 percent in 2008,” he told a public forum.
The 2008 official GDP growth target is 6.3-7.0 percent and the inflation target, 4.0-5.0 percent.
Services and agriculture will continue to be the main drivers, while manufacturing growth would be at an even lower 3.0 percent from 3.3 percent last year, Yap said.
Yap forecast inflation at 4.8-5.2 percent “or at the very least on the high side of the target.”
“The peso is overvalued by roughly nine to 10 percent,” he said. “Which is the main thing constraining our manufacturing sector.”
Yap also said that the central bank, Bangko Sentral ng Pilipinas (BSP), could do more to temper the rise of the peso.
He said the amount spent by the BSP to rein in the peso was much lower than the amount spent by other countries.
The BSP spends less than 10 percent of the GDP to intervene in the foreign exchange market, compared with 30 percent in China and Malaysia and as much as 40 percent in Taiwan and Singapore, he said.
Investment rates plunged to 13.8 percent of GDP in 2006 from 21.2 percent in 2000, Yap said, citing government data.
Imports of durable equipment for manufacturing fell to 46 percent of GDP in the nine months to September 2007 compared with the 63 percent of GDP measured during the Asian financial crisis in 1997.
“Traditional elitist conglomerates” were not investing profits and lowering the cost of doing business “because they are earning profits anyway,” Yap said. With a report from Agence France-Presse and Inquirer; edited by INQUIRER.net
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