Philippine economy can still attain 4.8% growth in 2011, says think tank

MANILA, Philippines—The Philippine domestic economy may still expand by 4.8 percent in 2011 as the government belt-tightening that weakened growth in the second quarter could still be reversed in the remainder of 2011, New York-based think tank Global Source said.

In a commentary written by Filipino economists Romeo Bernardo and Margarita Gonzales, Global Source said the country’s gross domestic product (GDP) could also grow at a faster clip of 5.5 percent by 2012.

The report was dated August 31, the day when the Philippine government reported that the country’s GDP for the second quarter grew by only 3.4 percent and thus fell way short of market expectations of 4.9 percent and the government’s forecast of 4.5-5.5 percent.

Global Source said this apparently was a surprise even to those who had anticipated a slow economy on account of base effects coming from a high-growth election and export-recovery year and recent proliferation of negative global developments threatening exports and remittances.

In its report, the think tank said a snapshot of the economy from the production side showed a fall in industrial activity, due to a deterioration in construction (-16.1 percent from 24.7 percent in the same period last year) and utilities (-2 percent from 10.2 percent).

Agriculture actually rebounded with a growth rate of 7.1 percent (from -1.9 percent last year), while services grew by a still quite robust 5 percent, the research pointed out.

Global Source said the view from the expenditure side showed an abrupt slowdown in capital formation, growing by only 0.9 percent (from 38 percent last year and 42 percent the previous quarter), again largely due to a decline in construction activity.

Net exports fell as expected, likely further weighed down by Japan’s nuclear crisis and Middle East-North African shocks while consumer spending remained strong with a growth of 5.4 percent, the research pointed out.

“The decline in construction can be largely blamed on government underspending, with public works slowing (by -51.2 percent) even as private activity surged (19 percent),” Global Source said.

“This also bears out our forecast of a slow start for the public-private partnership (PPP) program, likely impeded by governance problems carried over from the previous administration and the desire of the current government for high ‘quality at entry’ contracts/projects,” the research said.

But Global Source also noted that the country’s economic managers were expecting a pickup in infrastructure spending for the rest of the year with steps already taken to fast-track disbursements of implementing agencies. These include focusing on fast-moving expenditures; setting up timelines for the processing of notice of cash allocations (NCAs) by the budget department; allowing government agencies to pay creditors and contractors with their available NCAs; and advanced implementation of social programs.

“With the second-quarter slowdown mainly a result of government spending compression and hence reversible, we tentatively hold on to our 4.8 percent forecast for the year and 5.5 percent for 2012,” Global Source said.

“However, we are also poised to downscale our expectations depending on how gloomier the global outlook gets, especially with talk now rife of a double-dip US scenario,” it added.