RP economic growth slows to 5.2% in Q1

Faced with a US-led global slowdown and soaring food and energy prices, the country’s economic growth slowed to 5.2 percent in the first three months of the year, casting a pall over the outlook for 2008.

The government was looking at an annual growth of between 5.2 percent and 6.2 percent for the quarter.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the weaker economic growth would dampen inflation, which the BSP is closely monitoring ahead of its June 5 rate-setting meeting. “The slowdown can provide some relief to inflation as it reduces pressure from the demand side,” Tetangco said.

“We will act pre-emptively and decisively should our inflation target for 2009 be at risk,” he said, adding that the BSP would also assess if domestic liquidity was appropriate to support current economic activity.

The services sector expanded 6.9 percent from a year earlier while industrial output grew 3.9 percent.

Farm output, which accounts for a fifth of GDP, rose three percent.

The government has slashed its economic growth target and ditched its goal of achieving a balanced budget this year due to the impact of a US-led global slowdown and soaring inflation.

The government now expects GDP to grow between 5.7 percent to 6.5 percent in 2008 compared to the previous target of 6.3 percent to seven percent.

“We’re seeing slower growth for 2008 and a slower growth for 2009,” Economic Planning Secretary Augusto Santos told a news conference.

Santos said the world will “probably” suffer a repeat of the 1970s crisis of high oil prices, high inflation and depressed economic growth.

“It’s really a tough environment as a result of the global economic slowdown and this will really hit the poor,” he said. “As a general rule people are tightening their belts.”

He said the hardest-hit are the 23.5 million Filipinos, or 26.1 percent of the population, who earn P67 or less a day.

President Arroyo’s advisers have called for spending up to P75 billion, or one percent of the gross domestic product (GDP), to achieve 2008 growth of between 5.7 and 6.5 percent.

The government hopes to finance this with asset sales and loans — 70 percent locally and 30 percent to be secured from abroad, Santos said.

“After four quarters of pleasantly surprising performance, the Philippine economy succumbed to rising oil prices, a slowdown in the US economy and the negative effects of a strong peso,” said Romulo Virola, secretary general of the National Statistical Coordination Board (NSCB).

The government revised down 2007 fourth-quarter GDP growth to 6.4 percent from 7.4 percent.

The figure for the whole of 2007 was similarly tweaked to 7.2 percent from 7.3 percent, which the government said earlier was the fastest pace in 31 years.

   First-quarter growth was the lower end of the government’s and economists’ forecasts. The government was looking at annual growth of between 5.2 percent and 6.2 percent.

“The number is within our expectations. It tells us that the economy is suffering from the current global slowdown led by the US,” said Simon Wong, economist at Standard Chartered Bank in Hong Kong.

“With this, we see the Philippine economy growing at just four percent for the full year as exports will further contract. The downturn in the US is only the beginning of a bigger slowdown.

“The first phase was a result of the financial crisis while in the latter stage, this will spread to other aspects of the economy. It will slow demand for foreign goods,” said Wong who is looking at export growth of just three percent this year.

Weak outlook

“This does not bode well for the full-year growth prospects,” said Radhika Rao, an economist with IDEAglobal.”I was expecting the first quarter reading to be the strongest in the year.”

“With the weak growth outlook now confirmed, we doubt the central bank would attempt hiking rates at this juncture as we had previously assumed. (The) next move would only be delivered in the fourth quarter if any,” she said.

The Philippines, the world’s biggest rice importer and heavily dependent on fuel imports, has been hit hard by the surge in commodity prices this year and also by a slowdown in the United States, a major trading partner.

Private demand, the engine of the domestic economy, has also taken a beating as Filipinos’ disposable incomes have been gobbled up by rising costs of food, fuel and other basic commodities. Annual inflation in April hit a three-year high of 8.3 percent.

Personal consumption grew a seasonally adjusted 0.3 percent in the first quarter compared with 1.8 percent in the fourth quarter and the slowdown may give the central bank room to hold off raising rates, analysts said.