MANILA, 29 August 2003 — The Philippines narrowly avoided a recession in the second quarter, officials said yesterday with a warning that local political troubles are scaring away investors.
Gross domestic product (GDP) rose by a lower than expected 3.2 percent in April-June from a year earlier and inched up by a mere 0.1 percent from the previous quarter, meaning it only just avoided a technical recession, they said.
Recession entails two successive quarters of negative economic growth.
But while the domestic economy nearly floundered, gross national product-which takes into account income from the large army of Overseas Filipino Workers — grew 4.5 percent in the second quarter from 2.3 percent in the same period last year.
The so-called net factor income from abroad or NFIA rose 22.6 percent in the three months to June from a contraction of 18.5 percent last year. This was due to a significant 9.4 percent rise in compensation income from 3.1 percent a year ago.
Socioeconomic Planning Secretary Romulo Neri believes this trend will continue for the rest of the year. “We now have more skilled workers who earn more and can send their remittances home. We don’t see them being affected by the negative sentiment of investors,” Neri said.
The peso, meanwhile, rallied strongly in late trading yesterday as the central bank slightly tightened monetary policy to stem the rapid slide of the local currency.
The local unit was at 54.93 to the US dollar in late afternoon trading as the bank’s policy-making Monetary Board scrapped a tier scheme of decreasing interest rates on its overnight lending and borrowing.
Decided at a board meeting yesterday, the action aims to encourage banks to park more money in the central bank and is considered the mildest of the policy options available to officials.
President Arroyo appealed to the public to let go of their US dollars to help boost a weak peso.
“It would be a patriotic act for small dollar-holders to help ease up the foreign exchange market by letting go of their foreign exchange,” she said. “We have to meet these challenges with a sense of solidarity and nationhood.”
Neri said the government should still attain the low end of its 4.2-5.2 percent GDP growth target for the whole year but warned that political risks could dampen expansion. “Our political environment is beginning to generate risks which is increasingly unacceptable to investors,” he told a news conference.
The Manila-based Asian Development Bank warned on Wednesday that a four percent growth this year and 4.5 percent expansion next year would “depend on the pace of domestic economic reform, a supportive global economy, and no further shocks.”
News of the second quarter economic performance shook the Philippine equities markets. The Philippine Stock Exchange composite index closed 24.49 points lower or 1.98 percent to 1,218.42.
The peso traded higher yesterday morning ahead of a Monetary Board meeting that was expected to announce measures to curb the rapid depreciation of the local currency against the dollar.
Officials said yesterday that the services sector rose five percent from a year earlier in the second quarter, being the main driver of growth amid a period that saw the Severe Acute Respiratory Syndrome (SARS) epidemic, the Iraq war, and drought brought on by the El Nino phenomenon.
Agricultural output grew 1.6 percent in the second quarter from 1.9 percent last year, while industrial output improved by 1.7 percent although this pales in comparison with the 3.5 percent recorded in the same period last year.
Neri said GDP should grow between 3.8 and 4.3 percent year on year in the three months to September amid the fallout of the July 27 mutiny.
He said the recovery of the agriculture sector, specifically of corn and palay, as well as the export sector and government spending, would help the government to reach the low end of its target for the full year.
“Markets will thrive only in a safe and predictable environment — when businessmen feel secure physically and economically, when copyrights are protected, when rules of the game are fair and predictable,” he said.
Threats to these benchmarks “only serve to amplify the already volatile political events to the disruption of our markets and business activity,” he added.
Major industries like mining and quarrying, manufacturing and electricity, gas and water managed to expand although moderately. But the construction sector was severely affected by negative investor sentiment, Neri said.
The NEDA chief said it was construction that pulled down the economy during the period. While the growth in investments in durable goods increased in the second quarter, Neri said this was not enough to boost the economy.
In the second quarter, construction plunged 12.2 percent versus an 8.4 contraction a year ago.
Figures show that under the manufacturing industry, petroleum and coal, food, footwear and apparel were the top contributors to growth. Electrical machinery, tobacco manufacture and transport equipment, however, were the top losers.
In the services sector, the financial sector managed to report a strong growth of six percent, from 4.4 percent a year ago.
Filipinos’ spending despite the political and natural problems facing the country helped boost the economy, especially in making up for a huge drop of 8.7 percent in government spending.
