A snag in the march forward

RP economy to brake in ’08 as exports weaken



Philippine economic growth is expected to slow this year, after hitting a three-decade peak in 2007, due to weaker exports as global demand slows and as private spending and investments dip, a Reuters quarterly poll showed.

Analysts expect government spending on social services and the rehabilitation of the country’s creaking infrastructure, however, to provide some support for growth this year, after the Philippines abandoned its plan to balance its 2008 budget for the first time in more than a decade.

Twelve economists had a median forecast of 5.1 percent growth for gross domestic product (GDP) this year, substantially slower than 7.3 percent in 2007.

The latest estimate is lower than the 5.8 percent forecast in a similar poll conducted in March and was also below the government’s estimate of 5.7-6.5 percent growth this year.

“Downside risks to growth have grown substantially, with net exports likely to be a bigger drag than previously anticipated and modest growth in private consumption,” said Radhika Rao, an economist at IDEAglobal.

Shipments of semiconductors and electronics parts, which dominate exports, are expected to be softer this year as demand from the Philippines’ main export market, the United States, remains tepid.

The central bank has shifted to a tightening policy bias from neutral on emerging signs of second-round effects from rising inflation, which hit a nine-year high of 9.6 percent in May and is likely to peak at 10-11 percent in the third quarter.

But the central bank is wary of raising rates too much as it could dampen economic growth. Analysts expect the central bank to raise rates by a further 50 basis points, taking the key overnight borrowing rate to 5.75 percent by the end of the year.

The poll forecast inflation of 8.2 percent in 2008.

Some analysts expect inflation to start easing as the government announced it would flood the market with rice stocks to dampen domestic prices during the lean harvest months of July to September.

“We’ll see a bit of an improvement coming through in the fourth quarter. We may indeed actually see it in the third quarter,” said Nicholas Bibby, regional economist at Barclays Capital in Singapore, referring to inflation.

The Philippine central bank said it expects inflation to reach double-digit levels starting in June, but sees a steady decline after the third quarter.

But fuel prices, which are continuing to hit record highs in the global market, remain a big risk. The Philippines imports nearly all of its crude oil requirements.


Source: http://www.abs-cbnnews.com/storypage.aspx?StoryId=123813





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