Philippine growth skids over Europe turmoil

The Philippines economy is heading for a slowdown as the effects of the European debt contagion that manifested in the problem of Greece are starting to spread worldwide.

“The world economy has turned sour. The euro zone is slowing because of the uncertainty owing to the pestering Greek debt problem. China, which is the second-biggest economy in the world and the Philippines’ second trading partner, is heading south,” University of the Philippines School of Economics (UPSE) Prof. Benjamin Diokno said.

Exports receipts registered their sharpest drop since December 2011 as they declined by 17.4 percent in May 2015, the latest National Economic and Development Authority (Neda) figures showed.

“The recent outturn of Philippines exports, as well as in many Asian economies, reflects the general market outlook and consensus in the near term, signaling a slowdown of the global economy,” Neda Officer in Charge and Deputy Director General Emmanuel Esguerra said.

Exports revenues reached $4.9 billion in May 2015, down from $5.9 billion in the same period last year. The Philippines recorded the largest decline of export revenues among major trade-oriented economies in East and Southeast Asia.

“Slowdown in global trade due to the weakening of China, as well as the fiscal crisis in the euro zone will certainly spill over globally, although the magnitude of the impact remains to be seen. Policymakers should remain vigilant on the possible outcome of these external developments and how they may impact the trade competitiveness of the country as well as the domestic economy,” Esguerra said.

Weak global demand and the prolonged El Niño dry spell also pulled down manufacturing production in May 2015.

In the Philippines Statistics Authority’s Monthly Integrated Survey of Selected Industries, or Missi, the country’s manufacturing sector contracted by 3.1 percent in May 2015, from an almost flat growth in April 2015 and from last year’s 12.7-percent growth in terms of volume.

Similarly, in terms of value, the sector contracted by 7.3 percent in May 2015, from 11.4-percent growth in the same month in 2014.

Despite the obviously weakening growth momentum, economic managers insisted on a target of 7-percent to 8-percent growth this year.

“And why do they also insist that the economy will grow 7.5 percent to 8.5 percent in 2016? Are they blind or just waiting for the right time to adjust downward—the right time being after the President Aquino’s final State of the Nation address?” Diokno said.

Diokno said the Philippines economy might be “normalizing” at about 6 percent this year and next as Mr. Aquino steps down.

The economy grew 5.2 percent in the first quarter, which surprised many, including administration officials who were projecting a growth of at least 6 percent.

This tepid growth, combined with grim external and internal signs, might have prompted international financial organizations, major foreign banks, and creditrating institutions to downgrade their outlook for the Philippines economy.

As a result of grimmer global outlook, the external economy cannot be expected to be a source of growth. Foreign direct investments (FDI), which could be a good source of decent employment, have turned sour, too. Investor confidence is waning. Bangko Sentral ng Pilipinas (BSP) officials projected net FDI inflows to reach $6 billion this year, up from an initial estimate of $5.3 billion reached in November 2014.

From January to April, net FDI inflows totaled $1.234 billion, or 48.3 percent lower than the $2.386 billion recorded in the same period in 2014.

What worsens the situation is that the state of public infrastructure remains poor, Diokno said.

“Shortages in electricity and air transport persist. The urban transit system is worsening. The privatepublic partnership (PPP) initiative has barely progressed.

“The few PPP projects that have been contracted out would likely be finished after Aquino’s term,” he said.

Both the International Monetary Fund and Moody’s adjusted downward their growth forecast by 0.5 percent. The global giant HSBC had the lowest revised forecast for Philippines GDP growth.

It trimmed its forecast to 5.6 percent, noting that “weak global demand dragged net exports in the first quarter of the year by almost 2 percentage points… resulting in a slower-than-expected GDP growth of 5.2 percent in the first quarter.”

Of the nine institutions, the range of GDP forecast for 2015 is 5.6 percent to 6.5 percent, with a mean forecast of 6.1 percent. That is nowhere near the lower end of the official forecast of 7 percent. Luis Leoncio