Philippine Business Magazine: Volume 9 No. 3 - Forecast
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Philippine insiders may see it differently but outsiders believe the country is poised for higher growth
By Michael B. Mundo

The air of uncertainty in the global economy brought about by the events of 11 September has slowly been easing. The US economy is starting to stage an upturn, although how strong the recovery will be remains a question. Global trade, meanwhile, is poised to pick up at a slight pace, given risks posed by the volatile movement of world oil prices. Nevertheless, better prospects have convinced international and regional institutions to revise upwards their 2002 economic projections for the Philippine economy.

In April, the Asian Development Bank released its annual Asian Development Outlook for 2002. ADB President Tadao Chino believes Asia will continue to be one of the fastest growing regions in the world. He points to the strong US growth in the first quarter, improving economic performance in Europe, and positive signs in Japan as factors spurring growth in the region.

The International Monetary Fund likewise published its World Economic Outlook (WEO). IMF Managing Director Hoerst Köhler credited US monetary and fiscal policies instituted after the 11 September events to help prop up the global economy and not pull it down for long.

For its part, the United Nations Department of Economic and Social Affairs prepared its Global Economic Outlook. The UN noted the early economic recovery in the US and antecedent signs in Asia and Europe. The global recovery is driven by the following factors: accommodative monetary policies of central banks; fiscal stimuli; resilient household spending; softening energy prices; strengthening consumer and business confidence; and inventory replenishment. Unless the Middle East conflict threatens to drag world output growth, world oil prices are expected to fluctuate around US$23 per barrel in 2002 from an average of above US$24 per barrel in 2001.

The World Bank also posted its East Asia Update. Except for Japan, East Asia is on a rebound supported by the global upturn, higher commodity prices, and more discriminating international capital markets. Yet, much remains to be done in the area of poverty reduction.

In May, World Trade Organization economists already dismissed a strong rebound for world trade in 2002. Nevertheless, recovery is expected in the first quarter of 2002. In 2001, exports from East Asia and the United States, which have been trading intensively in IT products, posted the sharpest declines.

In 2002 and 2003, however, exports from the economies of ASEAN 4 are expected to push GDP expansion to an average growth rate of 3.5%-4.6%,, from 2.2% in 2001. After 11 September, the average GDP growth rate forecast for 2002 was lower at 3.0%. Among the ASEAN 4 economies, Indonesia is seen to at the same rate of 3.3% in 2002 and 2003. Indonesia ironically posted the highest GDP growth rate of 3.3% in 2001. Malaysia’s GDP will have the fastest accelerating growth rate in 2002 and in 2003, surging to 3.8% and 5.9%, respectively, from 0.4% in 2001— when it posted the lowest growth rate. In 2002, Philippine GDP growth, as seen by these outsiders, will outpace the three other economies, growing at an average rate of 4.1% from 3.2% in 2001.

IMF’s WEO reported that structural problems still hang over growth prospects in Indonesia, the Philippines, and Thailand. Strong and robust growth will depend on financial and corporate sectors as well as improving fiscal positions that will boost external and domestic confidence. The World Bank likewise stressed the urgency of fiscal consolidation in Indonesia and the Philippines.

For the Philippines, poverty reduction remains a common urgent concern of the Asian Development Bank and the World Bank. ADB believes an annual GDP growth rate of 4.0% or more has to be sustained to fight poverty. Employment opportunities may be improved by encouraging investments into labor-intensive businesses. The quality of growth to empower the poor will provide better educational facilities, reduce transport cost of isolated communities, and strengthen democratic institutions at different government levels. Aside from pushing for reforms on governance and the public sector as well on banking regulations, the World Bank supports private sector development in the rural areas, and empowering and protecting the poor to participate and share in development.

In conclusion, international and regional financial and development institutions have expressed more confidence in Philippine economic growth in 2002 than private forecasters. The Economist magazine and Consensus Economics, however, seem less optimistic. Their average GDP growth forecast for the Philippines is 3.6%.