Foreign agencies project better growth prospects for 2004
By Michael B. Mundo

April 28, 2003 - Five international and regional institutions project Philippine GDP growth to slow down to an average of 4.2% in 2003 compared to its 4.6% change in domestic output in 2002. All of these agencies underestimated the country's GDP growth forecast at 4.0% last year. Three of them have cut 2003 economic prospects downwards back to their original 4.0% GDP growth expectation for 2002.

ADB
Last 28 April, the Asian Development Bank's (ADB) Asian Development Outlook 2003 brought down its Philippine GDP growth forecast for 2003 to 4.0% from its 4.5% GDP growth projection in September 2002. Assuming a short-term impact of the conflict in Iraq on the world economy and a quick resolution of the SARS epidemic, the growth of the domestic economy will be "driven by domestic consumption, improved exports, and public investment." Agriculture growth will be moderate due to El Niño. While industry growth is expected to be flat, high-technology services are expected to boost expansion in the services sector.

ADB likewise foresees better prospects for 2004 with a 4.5% GDP growth projection as agriculture growth recovers. The Outlook expects consumption and net exports to lead growth next year.

UN DESA
Likewise the United Nations Department of Economic and Social Affairs revised its 2003 GDP growth prospects for the Philippines downwards to 4.2% in its LINK Spring meeting forecast ending 25 April from 4.8% last fall (October 2002). With higher oil prices and "slower foreign and domestic demand," industrial production is expected to suffer from the ongoing global uncertainty this year.

Backed by a strong performance of fixed investments, GDP growth is expected to reach 5.4% in 2004.

WB
Last 24 April, the World Bank's (WB) East Asia Regional Update cut its 2003 GDP growth forecast to 4.0% from 4.3%. To sustain "robust" growth led by private demand, WB stressed the reduction of fiscal deficit amidst rising domestic interest rates, depreciating exchange rate and rising global bond spreads. Furthermore, "downside risks to the global economy remain significant, exacerbated by the still uncertain repercussions from the war in Iraq and the spread of the SARS virus, in terms of exports, oil prices, remittances and access to global capital."

For 2003, Philippine GDP may grow 4.5%, according to the World Bank.

UN ESCAP
Another agency of the United Nations, the Economic and Social Commission for Asia and the Pacific (ESCAP) came out with its forecast last 17 April. According to its Economic and Social Survey of Asia and the Pacific 2003, Philippine GDP is expected to grow at the same pace as last year but will pick up to 4.9% by 2004.

For economies in Southeast Asia, in particular, the Survey emphasizes continuing reform programs in corporate and financial sectors to enhance investor confidence since fiscal and monetary stimuli for growth are limited by rising public debt and falling inflation. On the global scene, the uncertainty created by the run-up to the war in Iraq cannot be reversed immediately upon the end of hostilities. Moreover, the Survey is concerned about trade slowdown from the "faltering momentum of growth in the US and the EU" as well as the "anemic Japanese economy."

The impact of SARS in East and Southeast Asia, the Survey notes, could extend beyond the second quarter of 2003 -- primarily affecting tourism, travel, hotels, restaurants and retail. While the Survey does not project the impact of SARS on the Philippines, it warns against low public spending on health when measured against GDP.

IMF
Last 9 April, the International Monetary Fund's (IMF) World Economic Outlook likewise changed its Philippine GDP growth rate expectation for 2003 to 4.0% from its September 2002 forecast of 3.8%. At the same time, IMF lowered its consumer price inflation forecast to 4.0% from 5.0%. In contrast, the external environment is marked by a continuing slowdown among industrial economies and "rising uncertainties in the run-up to war in Iraq."

For 2004, the Fund, expects Philippine GDP growth to remain flat at 4.0%.

Average
From abroad, the average Philippine GDP growth expectations are 4.2% for 2003 and 4.7% for 2004. The 4.2% average GDP growth forecast (original and revised) for 2003 coincides with the low end of the range of the Philippine government's growth projections (prior to review in the light of the SARS outbreak). Among the five institutions, UN ESCAP came out with the highest GDP growth forecast for the Philippines for 2003 and UN DESA gave the most optimistic growth estimate for 2004. For 2003 the Asian Development Bank, the International Monetary Fund and the World Bank all agree that the domestic economy's pace of expansion will slow down to 4.0%

In 2002, all five agencies underestimated the Philippine economy's growth prospects. In fact, WB's Update called last year's 4.6% GDP growth surprisingly strong. Will the domestic economy surprise them in 2003 and 2004?