GDP growth seen easing to 4.8% in ’11

NEW YORK-BASED think tank Global Source has tempered its growth outlook on the Philippine gross domestic product (GDP) this year to 4.8 percent from 5.3 percent, citing ripples from high commodity prices coupled with “domestic inertia.”

In a quarterly report titled “Stirred But Not Shaken” dated May 12, the research written by Filipino economists Romeo Bernardo and Margarita Gonzales said that despite lower growth expectations, the central scenario in their view would still be a “manageable” domestic economy.

“We are still expecting oil prices to stabilize by 2012 with stagflation reminiscent of the 1970s unlikely to occur,” the research said.

Stagflation occurs when prices are rising when the economy is not growing like in the 1970s, when world oil prices skyrocketed and fueled sharp inflation in developed countries.

“Thus far, double-digit inflation seems unlikely to set in especially with good harvests helping to keep food inflation down. We also believe that spillovers to domestic economic activity due to disruptions in Japan’s production as well as curtailment of Japanese demand will not last for very long especially with a massive reconstruction effort underway,” Global Source said.

The research projected inflation this year to average 5.2 percent. It also sees the Bangko Sentral ng Pilipinas’ overnight borrowing rate ending the year at 5 percent, suggesting a further increase in key interest rates from the current 4.5 percent.

“With inflation likely to peak around the fourth quarter, we continue to expect further monetary adjustments before the year ends. The country’s CPI [consumer price index] rose in April mainly because of global oil price pressures, with the fuel, light and water and services subcomponents registering the largest monthly increases as expected,” it said.

The think tank added that greater second-round effects could be anticipated going forward especially with a rise in minimum wages, a move backed by President Aquino, who recently called for the fast-tracking of wage deliberations nationwide.

On the Middle East-North African crisis, Global Source said the best-case scenario would be for the social unrest to subside completely, thereby putting global oil prices on a steadier and flatter path and minimizing the inflation threat worldwide.

But in a worst case, it said oil prices would continue to escalate because of supply disruptions to as high as $140 a barrel, heightening inflation expectations worldwide. “While stagflation would still not be a certainty under this scenario in our opinion, it would be a much more real risk for the global economy,” it said.

Global Source maintained confidence in the resilience of remittances and of services exports, specifically business process outsourcing.

“This year, as in 2008 when crude prices shot up, the pressure will be on the goods trade balance as an anticipated reversal of the technology cycle exacerbated by the downturn in Japan occurs in tandem with a ballooning oil import bill, with Dubai prices possibly averaging at about $110-$115 a barrel,” it said.

As such, the think tank is expecting a smaller current account surplus of around 3.3 percent of GDP this year, down from its previous forecast of 4 percent.

“If the uptrend in oil prices continues next year and dampens global outlook, it is unlikely the current account could improve by much and would probably still settle at below 4 percent. Electronics industry players tell us, however, that they are optimistic things would start looking up by the second half of this year, especially as the supply chain would have already adjusted after the Japan incident [with China still as the main driver and given some revival in Europe and the US], which should provide some support,” Global Source said.