RP braces for slowdown in US economy, El Niño next year

This year’s winners – agriculture and exports – are not expected to perform as well next year as they did this year as the country braces itself against the projected slowdown in the US economy aggravated by the El Niño phenomenon which is expected to hit agricultural production.

Economic Planning Secretary Felipe Medalla told reporters that the economy faces two major downsides in 2001, making it less likely that gross domestic product would hit the high end of government’s two to 3.5 percent growth rate.

According to Medalla, agriculture performed exceptionally well this year, but the sector is not expected to perform as well next year as the El Niño weather phenomenon hits the equatorial regions.

Medalla said agriculture is not expected to grow by more than three percent in 2000, after growing by 3.3 percent during the first three quarters of the year due mostly to record palay production.

According to Medalla, agriculture was the one saving grace this year, performing well enough to prevent food prices from spiraling out of control. "We cannot expect the same cushion next year because there is a drought," he said.

Moreover, Medalla said exports won’t be as brisk next year as the US economy slows down.

The US economy had slowed down to 2.4 percent this summer, the slowest in four years. Sales have begun tapering off and performing far less than expected, ultimately affecting countries exporting goods into the US.

Because the US remains the country’s biggest export market for electronics, garments and agriculture, Medalla said exports would also suffer the effects of the slowdown.

The only balancing factor, Medalla said, was the continuing strength of the euro which he said would augur well for the Philippine peso as well as Philippine exports into Europe.

Agriculture was the soft cushion that prevented the economy from spiraling out of control. Production was particularly strong during the third quarter of the year, growing by 5.5 percent for an average of 3.3 percent growth rate during all three quarters of the year.

Data from the National Economic and Development Authority (NEDA) revealed that agricultural output exceeded pre-crisis El Niño levels in 1997, due mainly to the 7.1 percent growth in palay production.

Medalla explained that as a result, food prices have remained stable despite the wild fluctuations in the peso-dollar exchange rate, Mindanao crisis and the increases in oil prices.

"This also explains why our exports have remained strong," Medalla said. "Export industries have actually benefited from the depreciation of the peso because there has been no need to increase wages as long as food prices are stable."

By yearend, Medalla said GDP would likely to hit the low end of government’s revised target and grow by four percent. "But I am not ruling out slightly lower growth," he said.

The emerging trend, Medalla said, was for GDP to expand by 3.4 percent in the fourth quarter with agriculture growing by 2.4 percent, industry by 2.9 percent and services by 4.2 percent.

In 2001, Medalla said government is looking at a wide range of two to 3.5 percent, indicating a slowdown from this year’s performance. "Next year is an election year so it is possible for us to hit the higher end of this target," he said.

Whether the economy will continue to have the cushion it had this year, however, would depend on the agriculture sector which, largely depends on the weather. As long as food prices remain stable, Medalla said, the impact of the peso depreciation and other disruptions would be staved off.