Wednesday, April 23, 2008 RP economy to post growth in ’08 if reforms remain intact
THIS year’s economy will turn out the same as that in 2007.
This was the forecast of regional economist Luz Lorenzo of ATR Kim Eng Securities Inc. for the country.
At the close of 2008, Lorenzo said the coun-try’s gross domestic product (GDP) growth will be robust, investments will be strong, and the peso would appreciate further to hit 38 against the US dollar—all this despite the slowdown of the United States economy.
Lorenzo, during her presentation at an economic briefing at the Marriott Hotel in Cebu City Monday, said that the looming recession in the US did not affect the Philippine economy last year, with the GDP—the total value of all goods and services produced in the country—growing at 7.1 percent.
The growth can be attributed to domestic demand which gained strength due to more investments, she said.
From a negative two percent in 2005, domestic demand grew and contributed 7.4 percent to the GDP at the close of 2007.
“The swing is in fixed investments,” Lorenzo said. She added that in 2007, more companies purchased durable equipment and constructed buildings while the government spent more infrastructure development.
Fixed investments
The purchase of breeding stocks in the agricultural sector is also a factor in fixed investments.
Overall, construction activity for 2007 contributed 20 percent to fixed investments growth.
But to sustain the momentum of 2007, Lorenzo said that it is important to consolidate existing economic reforms.
The improvement of tax collection efficiency will sustain the increase in public investments, she added.
She noted that, as a result of improved tax collection in 2006, the government was able to shrink the budget deficit from P65 billion in 2006 to P12.4 billion in 2007.
Although tax collection in 2007 declined to 14 percent, the government was able to sustain spending due to asset sales, particularly in the power generation sector.
Lorenzo also said that the key to stronger economic growth is having the national budget approved so the National Government can sustain the spending on infrastructure projects until 2010 and attract more investments.
With the budget approved for this year, the government will be able to sustain investment programs, she said.
Power sector
Lorenzo also said that there is a need to accelerate the deregulation of the power industry.
She described the manufacturing industry’s performance last year as being “laggard” since the sector was not able to compete globally due to high power rates.
The mining sector, on the other hand, is seen by Lorenzo as a “sunrise area” for the economy that should be developed with proper safeguards to avoid public backlash. In 2007, the mining industry grew at 33 percent, she noted.
But she said slow implementation of reforms will pose a risk on the positive economic forecast.
She also identified external factors, such as the sustained escalation of oil prices, which will raise inflation and interest rates, which could slow growth of the country’s GDP growth.
By the second half of this year, the economist expects commodity prices to go down. If not, growth forecast will be at risk, she said.
Lorenzo said the country will continue to suffer from the rice crisis, which will remain due to bad weather that would reduce supply.
She said that the Philippines is not the only country affected by the rice shortage as major producers of rice in the global market, like Vietnam, are also unable to produce enough due to bad weather.
“Fortunately, the rice cycle is short and (come harvest time) it will be easy to replenish,” she said.
