Outlook for 2010

Manila Bulletin, January 28, 2010 | Go to article overview

Outlook for 2010


For PNB's first board meeting for the new year, our Treasury Head Ramon Lim invited Ms. Luz Lorenzo, ATR Kim Eng Economist, to present the economic outlook for 2010. We had a good and open discussion on her outlook which also touched a bit on the political side definitely a big factor this year.Economic Recovery in 2010 Ms. Lorenzo expects a V-shaped recovery in terms of GDP growth of 5.5% versus 2009 which is just about 1% or even less. She supports this growth view coming from a low base as a result of the global crises as well as the underlying fundamentals such as:1) the Global Recovery which will contribute to Philippine exports. Export growth recently increased by a good 5% in November, after 13 months of continued decline.2) the Elections and with it, the corresponding spending .Private consumption and investments usually benefit from elections (although not always the case such as in 1998 mainly due the effects of the Asian financial crises then). Public sector construction also usually gets a lift during elections. And3) Reconstruction. Private construction growth was negative in 2009 but expect some reconstruction efforts with the recent devastation caused by the typhoons such as Ondoy. OFW remittances will be a funding source for the private sector. For the public sector, construction as part of the fiscal stimulus package in 2009 is expected to continue in 2010, financed by sovereign bond borrowings.Other economic expectations: No BOP crisis.During the 2008-2009 global financial crisis, Philippines did not have a balance of payment crisis (as experienced in 1998) and our international reserves actually continued to grow. This resulted in the appreciation of the peso against the US dollar (also affected by weakness of the dollar).Interest rates expected to go up.The BSP to increase interest rates during the year 2010 due to increasing inflation, but not to the point of constraining growth.The gross international reserves will keep the peso strong. External balances - Current accounts, Balance of Payments (BOP) and Gross Intl Reserves (GIR), will continue to be healthy and positive which will help in the stability of our economy. In other words,' invisibles balance,' remittances will continue to come in and be strong.Current account is composed of trade (exports and imports of merchandise goods) and invisibles (include OFW remittances/services). The Philippines merchandise trade deficit (imports of goods bigger than exports of goods) was always bigger than the invisibles trade surplus until 2003, when the invisibles were big enough to cover or offset the trade goods deficit. This resulted in the growth of the current account surplus contributing to the international reserves, now estimated at $45B end 2009.NG deficit will still be large at about P300 billion ,at less than 4% of GDP, will not pose a significant risk Philippines' NG deficit to GDP ratio of less than 4% indicates that the gov't can still continue to service the debt. (US with its huge fiscal packages is estimated at 12%).What can go wrong? What if the V shape turns to a double V or a W? Ms. Lorenzo cautioned her optimistic V-shaped economic recovery outlook with the occurrence of risks such as1) Inflationary Risks (due to a more severe El Niño phenomenon) and2) Growth Risks (double dip recessions in developed countries) and of course3) Political Risk is the most prominent risk specifically, the uncertainties regarding the automated elections. This is the first time we are automating and anything new is always subject to implementation risk.Automation in the corporate world, generally, pilot areas are selected first selected to try out before full implementation and parallel runs, automated and the manual system are actually done simultaneously to see for any variance/differences and corrected immediately, and stablilized before cutting off the manual or old system.

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