The global financial crunch is actually taking its toll on the Philippine economy affecting all economic sectors; the worse will take effect in 2009, and a slight economic recovery may only be possible in 2010, said UP Professor Dr. Cayetano Paderanga Jr., former Director-General of National Economic Development Authority (NEDA), former Executive Director of the Asian Development Bank (ADB), and former President of the Philippine Stock Exchange (PSE).
BY KARL G. OMBION
The global financial crunch is actually taking its toll on the Philippine economy affecting all economic sectors; the worse will take effect in 2009, and a slight economic recovery may only be possible in 2010, said UP Professor Dr. Cayetano Paderanga Jr., former Director-Gethenneral of National Economic Development Authority (NEDA), former Executive Director of the Asian Development Bank (ADB), and former President of the Philippine Stock Exchange (PSE).
Paderanga, who was the guest speaker in a business forum with the theme “Economic Landscape and Business Outlook for 2009” sponsored by Globe Business last week at L’Fisher Hotel, said that the US financial crisis is slowing down the world economy, including that of Asia and the Philippines.
Paderanga explained that “the financial crisis is a combination of large US balance of payment deficit resulting to weak US dollar and inflation, and very low US Federal Fund rate causing low yields on financial assets and creating asset price inflation especially in housing and bank credits. Combined, these result to the bursting of the sub-prime bubble which is now wrecking havoc on the US financial system and global financial institutions.”
“This crisis is now triggering the banks’ fall in the US, wiping out people’s bank and insurance savings, and worse, aggravating unemployment which has already registered at 6.1 percent for five years now,” he said.
Paderanga said that the effects in Asia, such as increasing financial volatility, commodities market volatility, inflation, slowdown in export growth and slowdown in foreign direct investment inflow, are already being felt.
“In the Philippines, the global crisis is certainly slowing down our exports, slowing down foreign direct investment inflow, soaring inflation and increasing risk aversion of investors,” he said.
“Most economic sectors are affected even the OFW’s remittances although the latter will remain as the key in keeping the economy afloat until conditions become better again,” he added.
As to economic forecasts, Paderanga, in his econometrics presentation, showed that the GDP growth of 7.2 percent in 2007 will be hard to reach even in 2010 or beyond, and that in 2008 GDP growth will likely post 4.6 percent only and even lower at 3.7 percent in 2009.
On the supply side of the growth forecasts, Paderanga said that agriculture will likely drop at 4.1 percent in 2008 from 4.9 percent in 2007, and increase a bit to 4.6 percent in 2009 and drop again to 4.3 in 2010.
Industry, meanwhile, will drop from 7.1 percent in 2007 to 4.9 in 2008, 5.6 percent in 2009 and 2010, he said.
The service sector, he said, will drop from 8.1 percent in 2007 to 5.2 percent in 2008, 3.6 percent in 2009 and 4.6 percent in 2010.
On the demand side of the growth forecasts, personal consumption expenditures will drop from 5.8 percent to 3.8 percent in 2008, 1.8 percent in 2009, and 2.4 percent in 2010, while government consumption expenditure is expected to drop to its lowest at 1.8 percent in 2009 and 2.4 percent in 2010 from a high of 8.3 percent in 2007, the UP economist continued.
The manufacturing companies will experience further rise in prices of raw materials but they cannot raise the price of their products because of market difficulties, while exporters will be forced to slowdown and major trading businesses will experience the same, he said.
As for the households, Paderanga said, they will suffer more layoffs, rising costs of living, reduced food and non-food consumption especially in electricity and other services. They will look for other sources of income; and engage in more borrowings.
“How the government will respond quickly and effectively to the crisis will depend much on its recovery program, especially against the deadly combination of inflation and rising costs of fuel and services, on its subsidies and support services to the most vulnerable sectors, and of course, on political factors in view of the forthcoming 2010 elections,” Paderanga concluded. (Bulatlat)