FOCUS ON ECONOMY Judge Jesus Mupas of the Pasay Regional Trial Court, left, looks as a police officer checks a bed inside a room where former President Gloria Macapagal Arroyo might be detained inside a police compound in Taguig, south of Manila, Monday, Nov. 28, 2011. With the slower-than-expected economic growth the Philippines registered in the third quarter, economists suggested that instead of focusing on political objectives, the government should try to understand why the economy isn’t growing. AP Photo/Aaron Favila
MANILA, Philippines—The slower-than-expected Philippine economic growth in the third quarter has made economists and analysts jittery over the country’s prospects for 2012.
The main-share Philippine Stock Exchange index closed 33.71 points, or 0.79 percent, lower to finish at 4,227.88. The main index is thus now barely higher than the end-of-2010 level of around 4,200.
“Looking ahead, growth should pick up in fourth quarter on the back of resilient domestic demand and increased government spending, but net exports will remain a drag on the economy. Given a worsening global outlook, we remain cautious on Philippine growth outlook for next year,” said Trinh Nguyen, an economist at British banking giant HSBC.
The sluggish performance in the third quarter, she said, reflected sharp contractions in both exports and construction investment.
“Domestic demand, however, picked up on the back of robust remittances and increased government spending. Looking ahead, we expect growth to accelerate in fourth quarter, albeit modestly,” Nguyen said.
Although the P72-billion stimulus package and increased remittances should bolster growth in the fourth quarter, Nguyen said they would unlikely be enough to completely offset the impact of weak exports.
“This makes for a very difficult decision when the Monetary Board meets on Thursday, as inflation remains above the target range and the growth outlook turns increasingly challenging,” she said.
Jose Mari Lacson, head of research at local stock brokerage Campos Lanuza & Co., said his firm had some optimism going into the GDP results release because of key operational indicators such as Meralco’s electricity sales growth and Aboitiz Power Corp.’s energy sales suggesting that demand remained relatively stable in the third quarter. “Unfortunately, our optimism appears to have been premature,” he said.
“We suspect the government is evenly stumped. And since we are seeing conflicting signals from the economic indicators, the outlook for 2012 is quite uncertain,” he said.
As growth has slowed more than expected for a second straight quarter, HSBC’s Nguyen said growth would likely average below 4 percent for 2011 and fall below the government’s official 2011 growth target of 4.5-5 percent. At the same time, she noted that inflation had yet to let up, having crawled back up above the BSP’s [Bangko Sentral ng Pilipinas] target range of 3-5 percent in October to 5.2 percent year on year. She added that inflation would likely stay above the target range again next month.
“Most of the drag to growth this year has come from the Philippines’ exposure to external demand. Merchandise exports have contracted for five consecutive months, with most of the decline coming from weakening global electronics demand. Services exports, primarily of business process outsourcing services, also declined. Given China’s slowdown, Europe’s recession, and sluggish growth elsewhere, these trends will unlikely reverse anytime soon,” she said.
But the economist noted that one bright spot for the Philippines has been domestic demand, which continued to support growth in the third quarter. This reflected robust remittance inflows, which make up almost 10 percent of GDP and are expected to increase in the coming months due to the Christmas season, Nguyen said.
“However, should global conditions worsen beyond current expectations, this may decelerate as well,” she said.
Although government spending has been expected to pick up in the fourth quarter with October’s stimulus, Nguyen said total spending for the year would likely still be below target, thus proving only a modest boost to growth.
Lacson said the main burden on the economy has remained to be the industrial sector. On the other hand, construction spending and production have been falling but it’s not because the government has been underspending as some quarters would like to believe, Lacson said. Meanwhile, he said manufacturing and food spending have been generally quite healthy.
“What is clear is that the stronger peso-dollar rate has taken its toll on the economy. Exports fell 13.1 percent while net primary income declined 3.4 percent in third quarter of 2011. So despite better personal consumption and government spending, the overall impact has been – not much,” he said.
The contradicting data in GDP have made it difficult to make an actionable conclusion, Lacson said. “The economy is definitely slowing down even after we net out the effect of the May 2010 election. We know which sectors are affected but we don’t know why these sectors are slowing down,” he said.
Instead of just accelerating spending, Lacson said the government might want to take a look at how to minimize the impact of a strong peso on the domestic economy. “Maybe instead of focusing on political objectives, the Aquino economic team should try to understand why the economy isn’t growing and why their economic policies are failing to solve the problem,” he said.