(UPDATE) RP on the brink of recession—official

By Judith Balea, abs-cbnNEWS.com

Posted at May 28 2009 11:33 AM | Updated as of Jun 02 2009 02:25 AM

The government has acknowledged for the first time that the Philippines may slip into recession this year going by recent economic data that suggest little prospects for growth in the coming months.

Data from the National Statistics Coordination Board (NSCB) showed that Philippine gross domestic product (GDP)--the measure of the value of goods and services produced by the economy--barely expanded in the first quarter of 2009 from the year ago, posting a growth of only 0.4 percent, the lowest since the 1998 Asian financial crisis.

The figure was much worse than market's forecast of 2 percent in an ABS-CBN poll, and the government's 1.8 to 2.8 percent projection. It meant that the impact of the global economic maelstrom early this year was far greater than what most of the country's financial analysts and economic managers were expecting.

On a seasonally adjusted basis, first-quarter GDP sank 2.3 percent after a revised 0.3 percent growth in the fourth quarter of 2008.

According to NSCB secretary-general Romulo Virola, the second quarter would be more challenging as leading economic indicators for the period "breached into the negative territory, confirming the all too real threat of a recession."

Except for money supply and the consumer price index, all the other indicators--foreign exchange rate, total merchandise imports, wholesale prices, hotel occupancy rate, tourist arrivals, number of new businesses, stock price index and electricity consumption--posted declines.

"These indicators suggest that economic activities in the second quarter are not as much as in the first. If this downward trend continues, we might have a recession," Virola told reporters.

A recession is defined as two consecutive quarters of negative GDP growth.

Major industries

Virola said the meager GDP growth in the first quarter drew positive contributions from construction, agriculture, transportation, communication and storage, mining and quarrying, and private services.

But overall, the country's major sectors posted lackluster performances.

The decline in the harvests of crops, corn and sugarcane led to the 1.0-percent contraction in the agriculture, fishery and forestry sectors during the first quarter after a 0.9-percent growth in the previous quarter.

Industry registered its lowest growth for the last 20 years as it dropped by 6.6 percent in the first three months, no thanks to the substantial weakening of the manufacturing sector.

The services sector, meanwhile, posted no growth for the period compared to a 0.2 percent expansion in the last quarter of 2008, as trade declined while other sub-sectors slowed down.

On the demand side, remittances from overseas Filipino workers failed to cajole consumers to spend, with the seasonally adjusted personal consumption expenditure down 3.1 percent, after more than 50 consecutive quarters of positive growth.

Socioeconomic planning secretary Raplh Recto said the economic crisis continues to weigh down on the confidence of consumers, who are now opting to save their hard-earned money.

"If the consumers were more confident, then more money would have gone into the system. But as it is, consumers are saving more," he told reporters.

Revise targets

Recto said they will meet with the Development Budget and Coordination Committee (DBCC) to review the country's targets this year following the bleak first-quarter GDP growth.

The DBCC is the inter-agency group which sets the country's macroeconomic assumptions.

Without elaborating, Recto said the government is now less confident of meeting its 2009 growth target of 3.1-4.1 percent, which he noted, "requires harder work because it means the country should have a GDP growth of 4.1 to 5.4 percent in the next three quarters."

He said the country's budget deficit may also breach the previous "worst-case scenario" level of P250 billion due to the possibility of GDP falling below the current target.

"Yes, the deficit could increase. It is now possible to go beyond the P250 billion," Recto said.

"We will also have to review the revenue and budget deficit numbers and see how these will be affected by the low GDP growth," he added.

Still optimistic

Nevertheless, Recto remains optimistic, saying that the first-quarter GDP figure will be the lowest this year.

He said the economy will "stay afloat" on the back of declining inflation, accelerated government spending and easing monetary policy.

"Government spending is expected to pick up in the next quarters since the budget was only released in March and it was really difficult for public offices to spend during the first quarter," said Recto.

"Loosening monetary policy will also help clearly," he added.

The Philippine central bank will hold a policy meeting later on Thursday and the market expects a cut of at least 25 basis points to 4.25 percent for the overnight borrowing rate, a fresh 17-year low. With a report from Reuters