Briefing Notes for the Launch in Manila, 6 May 2010
Growth performance and prospects
- The economy grew at 0.9%, amidst the global recession and two disastrous typhoons in 2009. Though this is the lowest GDP growth rate recorded since the financial crisis in 1997-8, it is a better performance than the economic contraction (-1%) the country went through during that time.
- GNP figures, on the other hand, which incorporates the net factor income from abroad ( including remittances from Filipinos abroad), grew by 3% in 2009. This is quite remarkable given the global slump in 2009.
- Contrary to expectations, remittances grew by 5% reaching a record level of US$17 billion. They now account for around 10% of GDP.
- Remittances supported consumption spending growth of 3.8%, notwithstanding the global slowdown.
- Business Process Outsourcing (BPO) expanded and supported employment.
- Merchandise exports of the economy, declined by 30% during the first three quarters of 2009. This was due to composition effet (electronics which is a crisis sensitive sector) and direction of exports (close to 35% of exports destined to US and EU markets in 2008)
- Merchandise imports fell much sharper than merchandise exports leading to a current account surplus.
- Growth forecast for 2010 is 3.5%. Election spending should prop up consumption demand in the first half of the year.
Inflation and Monetary Policy
Inflation rate for 2009 at 3.3% has been relatively benign compared to 2008 when the food and fuel prices rose dramatically.
- With inflation at manageable levels, monetary policy was loosened to prop up domestic demand.
- Inflation has increased to 4.2% in February 2010.
Fiscal situation and perspectives
- Fiscal deficit, as a percentage of GDP for 2009 expected at 4.5%, more than twice the corresponding deficit in 2008.
- Fiscal stimulus spending has been frontloaded for maximum anticyclical effect in 2009.
- Spending is focused on large infrastructure projects, but also job creating “shovel ready” projects in rural areas, and social programs.
- Reconstruction and rehabilitation spending in the aftermath of the calamities experienced in 2009 added further budgetary pressures.
- In addition, the government is set to spend billions of pesos as it prepares for an emergency food aid program for one million rural families projected to suffer from the devastating effects of the El Niño phenomenon that has affected many agricultural areas.
- For 2009, the Philippine has been able to avoid an economic contraction despite the global crisis and the natural calamities that transpired.
- However, the economy continues to be inextricably linked with the world economy as two important drivers of growth – exports and overseas workers remittances are affected by the world economy. Though many expect the US economy to recover from the recession of 2008, things remain quite fragile in the euro area. Thus, spurring on domestic demand, should be an important policy focus.