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Philippine growth forecasts slashed anew by ADB

Posted on December 07, 2011

THE ASIAN Development Bank (ADB) now expects the Philippine economy to grow by just 3.7% this year as it trimmed forecasts for many emerging Asian economies amid unresolved crises in the United States and the euro zone.

The Manila-based multilateral lender’s latest Asian Economic Monitor showed a one-percentage-point cut in the outlook for Philippine gross domestic product (GDP) from September’s 4.7%. In April, the ADB forecast 5% growth for 2011.

GDP grew by a record 7.6% last year.

The ADB expects an improvement to 4.7% in 2012, down from 5.1% in September. It is lower than the government’s 7-8% growth target and the budget “assumption” of 5.5-6.5% growth for 2012.

The 2011 outlook is also lower than the government’s downwardly revised 5-6% target and forecast 4.5-5.5% expansion for this year.

The collective growth of 10 countries in East Asia (excluding Japan), meanwhile, was pegged by the ADB at 7.5% this year, a tad lower than the 7.6% projected earlier.

For 2012, emerging East Asian countries are expected to grow by 7.2%, also lower than the earlier 7.5% forecast.

Six emerging east Asian countries’ 2011 GDP forecasts were downgraded: the Philippines (3.7% from 4.7%), Thailand (2.0% from 4.0%), Hong Kong (5.0% from 5.5%), South Korea (3.7% from 4.3%), Singapore (5.1% from 5.5%) and Taiwan (4.6% from 4.8%).

For 2012, the ADB lowered forecasts for GDP growth in all emerging East Asian countries except for Thailand, whose forecast was maintained at 4.5%.

“Growth is still strong but continuing sovereign debt problems in Europe and an anemic US economy will moderate economic growth rates in emerging East Asia next year. A deep and prolonged recession in both Europe and the US could impact emerging East Asia seriously,” the ADB said.

Iwan J. Azis, head of the ADB’s Office of Regional Economic Integration, said: “The turmoil emanating from Europe poses a growing danger to the trade and financial systems of emerging East Asia so Asian’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown followed by a slow recovery.”

The report noted that financial institutions in the eurozone and the US would likely roll back lending to emerging East Asia. The two regions are major export markets and sources of financial capital.

The Philippines’ outward shipments of goods fell by a hefty 27.4% in September 2011, significantly lower than the 46.8% growth registered a year earlier, due to weaker demand from the US and other major markets.

The ADB report outlined three possible global economic scenarios next year: a recession confined to the euro zone, which would translate to slower economic growth in the US; a deep recession in the eurozone and the US as recovery in the latter is disrupted by the former’s debt crisis; and a new global crisis where both eurozone and US output fall.

“In the worst case scenario with the euro zone and the US contracting as much as they did in 2009, the economy of emerging East Asia would grow by only 5.4% next year, 1.8 percentage points below the 7.2% currently forecast,” the ADB said.

To cope with a potentially prolonged global crisis and slow recovery, policy makers must consider financial, monetary and fiscal tools, it said.“These include contingencies to safeguard financial stability and ensure sufficient credit is available locally. Monetary policy must remain flexible while exchange rate coordination would avoid competitive devaluations. And the region should look to apply fiscal stimuli gradually and judiciously where needed while avoiding strain on their budgets.”

The report recommended that emerging East Asian countries continue structural reforms and supply-side policies. “With demand from the Eurozone and US expected to remain weak over the coming decade, emerging East Asia should continue to work toward increasing intraregional trade and financial cooperation, expanding links with other emerging economies,” the ADB said. -- Daniel Anne M. Nepomuceno-Rodriguez