Domestic demand to fuel growth next year - officials

Economic officials said domestic demand created by private consumption and public spending would have to take up the slack in global demand and support the country’s economic growth in 2009.

The economy grew 4.6 percent in the third quarter, much slower than the 7.1 percent reported during the same period last year.

But Finance Secretary Margarito Teves told reporters that the third quarter GDP growth, despite being slower, still reflected the country’s economic resiliency.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said the third quarter economic performance could still be considered “respectable” compared with the performance of other economies in the region and others outside Asia.

Teves however acknowledged that the future looks less certain especially with the global economy reeling from the impact of the financial meltdown in Europe and the US which had already begun making deep dents in private consumption and spending.

“Moving forward, we need to continue increasing in accelerating spending on infrastructure and social services to further boost the economy and protect the most vulnerable sectors,” Teves said.

Tetangco said that aside from increasing public spending, domestic demand has to be kept strong. He said domestic demand would have to counter the combined impact of rising risk-aversion and easing demand for Philippine products.

“Experience from previous crises taught us that a healthy domestic demand is key to ensuring that real growth is sustained,” Tetangco said.

“For the BSP, we will continue to monitor developments to ensure that our policies will sustain a macro environment conducive for growth,” Tetangco said. “We will keep focused on our mandate of stable prices, protect financial stability and keep credit and liquidity at appropriate levels.”

The International Monetary Fund (IMF) made the same conclusion earlier, saying that with exports slowing, all of the country’s growth would be coming from domestic demand, raising the risky proposition of sustainability when exports were declining.

IMF senior advisor Jerald Schiff said in a teleconference with journalists that the Asia Pacific Region as a whole was never expected to decouple from the major economies where growth has been the major driver in its trading partners.

“We never actually expected the region to decouple,” Schiff said. “Obviously with the entire global economy slowing, exports of the region will necessarily slow.”

In its recent annual macroeconomic review, the IMF said the country’s export growth would slow down this year and in 2009 as a result of the weakening demand in its major trading partners.

The IMF has also scaled down its projections for the country, saying that economic growth would be slightly slower than expected in 2009 and warning that the government should not risk incurring a large deficit that could make the problem worse.

With this in the backdrop, Schiff said domestic demand would have to take up the slack from slowing exports to the country’s major trading partners.

“I don’t have the figures for the Philippines in front of me, but for the region as a whole, net exports will have a slightly negative impact on growth, so basically all of the growth will be coming from domestic demand,” Schiff said.

Domestic demand, according to Shiff, would be supported to some extent by lower oil prices which represented an important turnaround from the past several years.

In the Philippines, Schiff said domestic demand could be supported by policy stimulus.

“But still I think it’s an open question as to how strong domestic demand can be when exports are declining, and that certainly represents an important risk to our projections,” he said.

While the country is in a good position to weather the crisis, the IMF said pre-emptive measures are needed to cope with the full brunt of economic slowdown.