MANILA, Philippines—The Philippine economy will likely remain “resilient” for the rest of the year due to a strong agricultural sector and the multiplier effects of government spending, despite the threats posed by higher crude oil prices and the fallout of the natural calamities in Japan.
According to the local unit of Dutch banking giant ING, the Philippines can also weather the effects of the Japanese crisis, which may lead to a decline in dollar remittances from Filipinos working in the world’s third largest economy.
“The impact of the disaster in Japan, through the disruption of the supply chain and a more modest remittance level, could be temporary,” said Joey Cuyegkeng, chief economist of ING Bank in Manila.
Still, a 30-percent increase in the prices of international commodities this year may curb economic growth in the Philippines, Asian Development Bank (ADB) said.
In a study, “Global Food Price Inflation and Developing Asia,” ADB said a 30-percent rise in international food and Brent crude oil prices in 2011 could slow down the economy by 1.2 percentage points in 2011.
Even a 5-percent decline in food, and 3.1 percent drop in Brent crude oil prices will result in a slowdown of 0.9 percentage points in 2012.
“This is because the country is a large net importer of both food and Brent crude oil,” the report said.
Among ADB member-countries studied, Singapore, also a food and oil importer, is expected to suffer much, with its economy slowing down by about 1.5 percentage points in 2011, and 0.8 percentage points in 2012.
Global food prices grew 34.2 percent year-on-year in February 2011. At the same time, the price of Brent crude oil has gone up by 39.9 percent.
Movements in international prices have started to affect domestic prices in developing Asian economies. The increase in global food prices by close to 30 percent in January, translated to an average of about 10 percent food inflation in a number of regional economies, the report said.
ADB said increases in global Brent crude oil prices are relevant in analyzing food price shocks because movements in input costs such as fertilizer prices, irrigation with diesel pumps, and general transport costs closely follow those for energy prices.
Larger hikes in global commodity prices are expected to badly hit the gross domestic products of most developing countries in Asia.
In conclusion, the ADB said concerns over high prices would rise because inflation would erode the purchasing power of households, undermining the poverty reduction and human development gains of the government over the last decade.
“Simulation results suggest that a 10-percent rise in domestic food prices in developing Asia (home to 3.3 billion people) could push an additional 64.4 million into poverty, or lead to a 1.9 percentage point increase in poverty incidence based on the $1.25-a-day poverty line,” ADB said.
Also, ING’s Cuyegkeng said that although the country’s overall growth could slow down given the current circumstances, especially after what had happened in Japan, the resurgence in Philippine agriculture and the government’s decision to release funds right away could revitalize the economy and offset the impact of world events.
Recently, the National Statistics Office reported that exports rose at its slowest pace since November 2009. But Cuyegkeng said this merely reflected the “normalization of economic activity after … the 2009 recession.”
Combined with the impact of the twin disasters in Japan last month, this may only have a “mild impact on the Philippine peso,” as overall dollar inflows from overseas Filipino workers’ and the business process outsourcing sector will likely “remain positive and more than cover the large trade deficit.”