Govt spending helps RP avoid recession - survey

Private consumption and increased government spending may have led to better economic growth in the second quarter, analysts said, allowing the Philippines to avoid a recession. Six out of seven market players polled by BusinessWorld forecast an annual improvement from the first quarter’s 0.4 percent, while one saw zero growth. The average for the six was 1.45 percent, well above the National Economic and Development Authority’s (NEDA) -0.1 percent to 0.9 percent outlook. A Reuters poll of 12 economists, meanwhile, had a more subdued annual growth forecast of 0.6 percent, but still better than the January to March result. Seasonally adjusted, the economy likely grew by two percent from the previous quarter’s -2.3 percent contraction, seven of the economists said. The Development Bank of Singapore (DBS) said on Monday that the Philippines could have avoided a recession, with quarter on quarter growth of 1.4 percent due to a recovery in consumption. "We think the economy likely averted a second quarter of contraction in the second quarter ... In year-on-year terms, our second quarter 2009 forecast translates into a mere 0.1 percent [growth]," it said in a research note. Official results for the April to June period are scheduled to be released this Thursday. Citigroup analyst Francisco G. Trinidad, Jr., who forecast 1 percent growth, said on Monday that "This confirms that we are not in recession, so it’s really worth harping about." "It also tells you that the recovery can be faster," he added. ATR KimEng Securities, Inc. economist Luz L. Lorenzo said the economy benefited from higher public consumption and government expenditures, gaining by 1.5 percent. "[E]verything has improved in the second quarter," said Security Bank Treasurer Rafael S. Algarra, who had the highest forecast of two percent. "Other countries across the world have also started to exit their recessions. I don’t see any reason why we should be any different," he said. The NEDA last week said the economy likely bottomed out in the first half and should post stronger growth later this year when election-related spending starts and consumers shop ahead of the Christmas holidays. Analysts said the data was unlikely to alter views policy rates would remain on hold at a record low for the rest of the year, with the central bank focusing on the economy’s performance in the second half to gauge the strength of the recovery. In the meantime, DBS warned that "While the upturn in consumer credit and remittances would have no doubt aided the recovery in consumption, it remains to be seen how well these factors will indeed continue to sustain consumer spending in the quarters ahead." The bank said it expects to see "a sequential rebound" in exports and imports of around 10 percent and 6 percent, respectively, as it expects global demand to ride on an economic recovery. The bank, however, said it remained uncertain if such demand would be sustained once the government normalizes the level of its expenditures amid an easing of the global recession. "Once expansionary fiscal policy winds down ... it remains to be seen if the demand cycle will be sufficiently self-sustaining," it said. Falling export revenues, timid public consumption, and the lack of sufficient government spending amid the global downturn were blamed for the lackluster first quarter. As a result, the government cut its growth forecast for the year to 0.8-1.8 percent from 3.1-4.1 percent previously. - Paolo Luis G. Montecillo, BusinessWorld with a report from Reuters