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By Likha C. Cuevas-Miel and Chino S. Leyco, Reporters
MINERAL and farm exports would help Asian
countries like the Philippines weather an expected recession in the
world’s largest economy, according to pundits.
Stephen Corry, Merrill Lynch head of investment
strategy, said countries like the Philippines would remain “fairly
resilient” since it can rely on agriculture and mineral exports to
China, India and other economies outside the US.
Corry also said that rising domestic consumption
in the Philippines and similar countries would also help them
survive the expected slowdown in US demand for Asian products.
“Economic growth in the region will slow down. No doubt about
that. But not that much,” he said, comparing the present episode
with the last recession triggered by the dot-com failures in the US
at the turn of the 21st century.
“In addition, we didn’t have China and India
back then,” he said, adding the two fastest-growing economies in
the world would help cushion the foreseen decline in import demand
by the US.
Asian countries that would be badly hit by the
US slowdown are those with higher exposure to the US like Singapore,
Korea, Japan and Taiwan, Corry said. These countries mostly export
electronics and other durable goods, prices for which have been
declining. In contrast, other countries in the region are better off
because they ship crude oil and agricultural products, the prices of
which may go up in time, the Merrill Lynch executive said.
“It’s interesting that when you look at the
export breakdown of Indonesia, Thailand, Malaysia and [perhaps] the
Philippines, not all of these are going to the US. If you look at
Indonesia, a large chunk of that is thermal coal and nickel.
Agricultural products are also positive as their values have emerged
and will continue to go higher. If you’re exporting high value
commodity which are largely insensitive to economic slowdown then
you’re better off. Maybe you should be able to export the right
commodity,” he said.
Separately, UBS Investment Research said
member-countries of the Association of Southeast Asian Nations (Asean)
are in a better position to weather a global growth slowdown than
was the case before the Asian financial crisis.
“The Philippine economy may be slowed by a US
recession but in our view it is definitely not out for the count,”
the bank said.
The Swiss bank expects the Philippine economy as
measured by its gross domestic product (GDP) to grow at 5 percent
this year from 6.1 percent previously. The slowdown would be due to
negative unfolding developments abroad that will dampen exports and
overseas employment.
“There will clearly be some fallout from
negative US activity growth,” it said.
But if export growth slows, it is improbable
that local demand will escape unscathed, the Swiss bank said, adding
that a weak external environment usually translates to softer profit
outcomes in the export sector, which in turn have a knock-on effect
on profitability across the whole economy.
Exploit proximity to China
Corry said the Philippines should exploit its
geographical proximity to China, especially since Manila is sitting
on a “very large” mineral resource that it can offer Beijing.
Although mining this potential however would require huge
investments, the rapid appreciation of Asian currencies including
the peso in the face of easing monetary policy in the US would cause
funds to move to Asia where they can earn higher yields.
“The problem is there is risk in accelerating
inflation driven by oil and agricultural prices. Do the central
banks have the policy options to deal with higher inflation?
They’ll start to appreciate the foreign exchange. I think those
with high current accounts surpluses would have to sacrifice like
China. In fact, a lot of Asian countries have large current account
surpluses so it’s a combination really of do you have to increase
interest rates and potentially threaten private consumption recovery
for export competitiveness?” Corry said.
Notwithstanding claims of Asia’s decoupling
from the US economy, stock markets in the region would remain very
volatile, he said. Until the US central bank gives in to a further
loosening up of monetary policy through a series of rate cuts, he
said markets would remain volatile in the short run.
For its part, UBS has revised its forecast on
how much the Bangko Sentral ng Pilipinas (BSP) will cut its policy
rates.
From its 4.75 percent earlier projection for
this year, the Swiss bank reduced by 50 basis points its projection
to 4.25 percent. For 2009, its initial forecast of 5.25 percent was
reduced to 4.75. At present, the BSP keeps its overnight borrowing
rate at 5.25 percent.
In the meantime, the Philippines would be buoyed
by domestic consumption and agriculture. “I think the Philippine
economy would hold out,” Corry said, adding the values in
property, telecommunications, power and utilities sectors are
emerging.
Q4 expansion on consumer spending, services
Acting Socioeconomic Planning Sec. August B.
Santos said the country’s GDP may have expanded by 6.7 to 7.8
percent in the fourth quarter of last year on the back of higher
consumer spending and a vigorous services sector.
He said the services sector likely grew between
8.3 percent and 9.4 percent, industry between 5.7 percent and 6.7
percent, and the farm sector, from 4.1 percent to 5.5 percent.
Telecommunications, trade, property, tourism may
have boosted the services sector, while mining is seen responsible
for the industry sector’s growth.
For the whole 2007, Santos projected a 6.9
percent to 7.3 percent expansion of the domestic economy. The
Development and Budget Coordinating Committee, which sets targets,
earlier said that GDP would grow from 6.3 percent to 7.1 percent.
In 2006, the economy grew 5.4 percent, below the
low-end target the government set for the year at 5.5 percent to 6.1
percent.
-- With Darwin G. Amojelar
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