Philippine Economic Growth Seen Slowing on Remittances, Exports

In Bloomberg this morning:

Philippine Economic Growth Seen Slowing on Remittances, Exports

Philippine economic growth probably slowed in the second quarter as nationals working abroad sent home less money and exports waned.

The $117 billion Southeast Asian economy grew 6.5 percent from a year earlier, down from 6.9 percent in the first quarter, according to the median estimate of 15 economists in a Bloomberg News survey. The figures are due tomorrow at 10 a.m. in Manila.

``Remittance growth has started slowing down,'' said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. ``Economic growth for the full year won't be as high as expected'' as gains in the peso curb exports.

The government is relying on cash sent home from the one- in-ten Filipinos who work overseas to boost economic growth to as much as 6.7 percent this year, easing poverty in a nation with an average income of $1.66 a day. President Gloria Arroyo has boosted taxes to fund infrastructure needed to attract investors and lessen the nation's reliance on remittances.

The amount of money sent home by overseas nationals, equivalent to a 10th of the economy, grew 13 percent to $3.54 billion in the second quarter from a 24 percent pace in the first three months of the year. Shipments of Philippine-made disk drives, mobile phone chips and other electronics increased 4.2 percent to $12.4 billion, easing from a 9.2 percent gain in the first quarter.

Lower Spending

The pace of economic expansion may have also eased as the government held second-quarter spending at 262 billion pesos ($5.6 billion), 9.3 percent less than in the previous three months. Spending was ``frontloaded'' into the first quarter before restrictions related to elections in May took effect and capped in the second quarter to help contain the budget deficit as revenue growth slowed, Neumann said.

``The Philippines is in a position to cut rates to cushion the domestic economy,'' said Vishnu Varathan, an economist at Forecast Singapore Pte. ``Inflation pressures are not overwhelming and with the slowdown in the U.S., price pressures are easing off.''

Consumer prices rose an average 2.3 percent in the second quarter, close to the lowest pace in seven years. The central bank cut its benchmark interest rate to 6 percent in July, its first reduction in four years.

Borrowing costs may need to be lowered further for the government to meet its growth target as demand cools in the U.S., the Philippines' largest export market.

``Electronics exports are very sensitive'' to currency movements, Neumann said. ``We see increasing migration of electronics production to China.''

Peso Gains

The peso rose 4.3 percent against the dollar in the second quarter, the second-biggest gain among Asia's 10 most-traded currencies. While the peso's climb hurt exports, it curtailed inflation by lowering the cost of imports.

Still, second-quarter growth may have been as high as 6.9 percent, central bank Deputy Governor Diwa Guinigundo said Aug. 23. Campaign spending by politicians and parties for elections in May may have helped the economy, said Jojo Gonzales, managing director at Philippine Equity Partners Inc. in Manila.

``Single-digit growth in remittances may have been compensated by the resilience of the domestic economy; the election, housing and construction, and the markets,'' said Song Seng-Wun, an economist at CIMB-GK Research in Singapore.

Following is a table of economists' estimates for year-on- year and seasonally-adjusted quarter-on-quarter economic growth.

Philippine GDP Estimates
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2Q 2Q 3Q GDP GDP
Firm YoY QoQ SA YoY 2007 2008
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Median 6.5% 1.0% 6.1% 6.2% 5.8%
Average 6.3% 0.9% 6.1% 6.2% 5.7%
High 6.8% 1.3% 7.0% 6.7% 6.8%
Low 5.4% 0.2% 5.2% 5.1% 4.5%
Number of Estimates 15 10 10 13 12
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Action Economics 6.5% 1.0% 6.4% 6.0% 5.0%
ANZ Banking Group 6.7% 1.1% 6.0% 6.3% 4.5%
ATR-Kim Eng Capital Partners 6.4% -- 6.0% 6.5% 6.8%
BDO Unibank 6.0% -- 5.9% 5.9% 6.1%
CIMB-GK Research 6.8% 1.3% 7.0% 6.7% 6.2%
Citi 6.2% 0.7% -- 6.3% --
Economist Intelligence Unit -- -- -- 6.0% 5.5%
Forecast Singapore 6.2% -- 6.1% 5.9% 5.8%
HSBC 6.2% -- 6.1% 6.2% 5.8%
Ideaglobal 6.5% 1.0% -- -- --
ING Groep NV 6.5% 1.0% -- -- --
Lehman Brothers 6.5% -- -- 6.4% 6.5%
Standard Chartered 5.4% 0.2% 5.2% 5.1% 4.5%
Thomson IFR 6.6% 1.1% 6.7% 6.7% 6.0%
UBS 5.7% 0.6% -- -- --
UOB Group 6.6% 1.1% 5.4% 6.0% 5.6%
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