Barclays sees slower 3% GDP growth for RP

MANILA, Philippines - Barclays Capital is forecasting a three percent growth in gross domestic product (GDP) for the Philippines in 2009, the lowest growth rate in the past five years.

 “We expect GDP growth to slow to three percent in 2009 from 4.6 percent in 2008 due to signs that global demand is slowing sharply. Exports, which were weak for much of last year, look set to decline in 2009 due to weaker global demand and, in particular, a sharp downturn in the electronics sector (electronics account for 60 percent of the country’s merchandise exports). The Philippines is also exposed to weaker global growth via exports of services, due to the sizable presence of outsourced back office operations and computer services, as well as remittances from overseas workers,” Barclays said in a report.

Economic growth during the first three months of this year is expected at only 3.5 percent, before taking a nosedive to 0.5 percent in the second quarter.

Nonetheless, Barclay Capital said that the Philippines will ride out volatility in the international financial markets. “In our view the country does not face significant structural imbalances that could lead to severe strains.”

Risk aversion will likely weigh on the performance of financial assets in the first three months, leading to the peso drifting lower versus the dollar.

 “However, we believe that the Philippines’ relatively robust balance of payments profile and improvement in public sector debt ratios will limit downside. Furthermore, with Philippine banks holding excess dollar deposits, they will likely be natural buyers of ROP bonds on any spike up in yields,” Barclay Capital said.

But the investment banking division of Barclays Bank Plc painted a grim picture with regards to the all-important remittance business.

The report said that remittances have been declining during global downturns, falling 11 percent in 1998 and 0.3 percent in 2001. The positive development is that inflows are becoming more geographically diverse, thus giving birth to a larger number of skilled workers including professionals.

However, the extent of the slowdown in global demand—accompanied by the fall in oil prices, which likely will weigh on flows from workers in the Middle East—will result in a seven percent decline in remittances in 2009 after rising by 13.7 percent in 2008.

 “We expect the drop in remittances to feed through to private consumption and investment as these flows have fuelled consumer spending and the recovery in the housing market,” it added.

Barclay Capital also forecasts that private consumption will slow down to 2.5 percent this year from 4.5 percent last year.