GOV’T ECONOMIC TEAM
‘Slowdown, not recession’
Gov’t to use ’09 budget to stimulate economy
By Christine Avendańo, Doris Dumlao
Philippine Daily Inquirer
First Posted 01:57:00 11/13/2008
Filed Under: Economy and Business and Finance, State Budget & Taxes, world financial crisis
MANILA, Philippines—President Gloria Macapagal-Arroyo’s economic managers Wednesday allayed fears of big business that the Philippine economy would slip into recession next year, saying they expected instead an economic slowdown.
At the Senate finance committee hearing on the proposed P1.4-trillion national budget for next year, the economic managers said the government would use the budget to stimulate the economy.
“What you mean by economic slowdown is when your neighbor loses his job. By recession, it’s you who lose your job,” Finance Secretary Margarito Teves said, explaining the difference between a recession and a slowdown.
Teves made this point in reaction to the results of a survey by the Makati Business Club (MBC) showing that a majority of businessmen expect a recession in 2009.
Like the economic managers, European banking giant Deutsche Bank expects the Philippine economy to grow next year but at a slower pace.
Deutsche Bank Wednesday said the Philippines was not in danger of falling into recession and instead was the only country in Southeast Asia that had so far escaped the harsh impact of the global financial turmoil.
Recession happens when the gross domestic product (GDP) contracts for two consecutive quarters. GDP is the value of goods produced and services rendered in the country in a given period.
Spike in layoffs
Eighty-seven percent of the businessmen polled by MBC said they believed the Philippine economy would fall into recession next year, while 60 percent said their company’s workforce “will contract.”
The MBC groups the country’s biggest conglomerates and companies, and the survey was conducted among its members’ top management.
Seventy-six percent of those surveyed agreed that obtaining bank loans would be more difficult, while 75 percent said “access to trade credits will be more difficult.”
The “most alarming concern” is an expected spike in layoffs projected toward the end of the first quarter of the year, according to the survey.
At the Senate hearing, the Cabinet-level Development Budget Coordination Committee (DBCC) said that while it expected the economy to grow next year, it would be “not as much as we expected.”
Growth targets lowered
The DBCC now expects the economy to grow at a slower pace of 4.1-4.8 percent this year after a slowdown in exports and farm output in the first nine months. The economy is expected to grow 3.7-4.7 percent next year.
It was earlier projected that domestic growth would be within 5.5-6.4 percent this year and 6.1-7.1 percent next year.
The new targets, the government’s second revision, were aligned with external developments “that may generate a knock-on impact on our overall economic activity,” Budget Secretary Rolando Andaya said in a statement.
The global economy is expected to slip into recession next year as a result of the financial crunch that started in the United Sates.
Philippine exports are now seen to grow by 2 and 4 percent for 2008, down from the previous forecast of 5 percent. Next year the figure is estimated at between 1 and 3 percent, down from 7 percent.
“Our focus now is how to increase growth because the inflation rate is now tempering, so we need to look for ways to stimulate economic growth,” Teves told reporters.
Revised deficit, exchange rate
With the change in the growth targets, the government revised the programmed budget deficit for 2009 to P102 billion from P75 billion this year, to provide room for fiscal spending to boost the domestic economy.
The government has also adjusted its peso-dollar exchange rate assumption for next year to 45-48 from 42-45 this year.
Deputy Governor Diwa Guinigundo of the Bangko Sentral ng Pilipinas said the changes in growth targets were broadly consistent with the projection of the International Monetary Fund (IMF) of a slower growth of 2.2 percent for the global economy next year, likewise downgraded from an earlier forecast of 3 percent.
Global recession
When growth in global output falls to 3 percent or below, the IMF considers it a global recession. For the Southeast Asian region, the IMF is now projecting a growth rate of 4.2 percent for 2009.
Socioeconomic Planning Secretary Ralph Recto said he found it “natural” for big business to be apprehensive of a recession next year, as some of them may have investments in foreign banks.
Recto said business was “in a better position not to do layoffs” because corporate income tax would go down next year from 35 to 30 percent.
“That (reduction in corporate income tax) would be helpful for the business community … That provides them some leeway not to fire people,” he said.
Aside from the corporate income tax reduction, Recto said inflation was also going down.
Because of the expected economic slowdown next year, the government is preparing a stimulus package, according to Andaya.
He said the proposed national budget for next year could provide the stimulus through infrastructure work and social services, including subsidies to the poor.
DSWD budget up 100%
“What we’re asking Congress is if it could pass early the 2009 budget so that people can benefit more,” Andaya said.
He noted that the budget of the Department of Social Welfare and Development was increased by more than 100 percent.
Recto said there were safety nets in the proposed budget for 2009, like the conditional cash transfer program for the poor. The government is asking for P5 billion this year from last year’s P300 million.
After listening to the DBCC briefing, Sen. Juan Ponce Enrile, chair of the Senate finance committee, said he found the revisions made by the executive department to be “realistic.”
“I think we should not be overly panicky about the whole thing,” Enrile told reporters in reaction to the MBC apprehensions. “We’re better off than most countries and that’s a good thing.”
In an equity research note issued Wednesday, Deutsche Bank said the Association of Southeast Asian Nations (ASEAN) as a bloc was far more resilient today than during the Asian financial crisis.
“While the collapse in commodity prices and the anticipation of weaker exports should hurt economic growth, Deutsche Bank is not expecting a recession in Indonesia, Malaysia, Thailand or the Philippines,” the report said.
But the German bank warned that currencies in the region would continue to face pressure as offshore investors shy away from smaller emerging markets.
Relatively unscathed
“Thailand is dealing with an almost self-imposed credit crunch and Malaysia is trying to fund a higher-than-expected fiscal deficit; only the Philippines seems relatively unscathed so far,” Deutsche Bank said.
If the government balances moderate optimism with prompt action and policies, the global financial crunch could actually benefit the country, a University of the Philippines economist said.
“We should still be able to grow next year, but much lower than what the government is predicting,” former Agriculture Undersecretary Arsenio Balisacan said.
Low economic growth in the country has not been reducing poverty, primarily because of an uncontrolled population growth, he said at the Ateneo de Manila University Professional Schools as part of the Jaime V. Ongpin Memorial Lectures. With reports from Edson C. Tandoc Jr. and Agence France-Presse
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