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RP growth under threat from Wall St crisis

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By Joel Guinto, Reuters
First Posted 10:39:00 09/17/2008

MANILA, Philippines — Turmoil on Wall Street could further crimp Philippine growth, the economic planning chief said Wednesday even as President Gloria Macagapal-Arroyo put a brave face amid the external ructions.

This year’s full-year growth goal of 5.5-6.4 percent, a downward revision itself, was in doubt before the credit crisis felled Lehman Brothers, but the biggest bankruptcy by assets in US history and ongoing reverberations in the financial sector risk a more pronounced global slowdown.

“On a worst-case basis, it could reach 4.7-5.5 percent,” economic planning chief Ralph Recto told reporters, ahead of an economic briefing for investors in Manila. “That’s my personal view.”

Recto said if full-year growth came in at 4.7 percent it would add a further P10 billion ($213 million) onto the worst-case budget deficit scenario resulting in a full-year shortfall of P85 billion.

A yawning budget deficit will put further pressure on the peso, down over 12 percent so far this year, and the weaker growth outlook has weighed heavy on the local stock market, which has dropped nearly 7.0 percent this week.

The gloomy outlook is a marked contrast to last year when economic growth hit a three-decade peak of 7.2 percent and the budget deficit was squeezed to just P12.4 billion amid a wave of privatizations and strong consumer demand.

Arroyo, addressing the briefing, said she was hopeful that increased government spending and efforts to rein in annual inflation, which hit a near 17-year peak of 12.5 percent in August, would help the country weather the storm.

“The statistics on slower growth reflect what we hope is a lagging indicator. We hope the worst is behind us and we have weathered the worst of the global storm,” she said.

“While no one can predict the future during these uncertain global economic times, it seems that our measures at home are seeing us through the toughest times as we prepare for a day with lower global fuel and food prices.”

But addressing the same briefing, the central bank governor warned that oil prices remained volatile and inflation remained a threat.

He reiterated that annual inflation was expected to peak either this month or next and then drop to single-digit levels around the end of the first quarter of 2009.

“Latest indicators show that inflation is losing steam but risks remain,” said Amando Tetangco Jr.

He said the central bank was monitoring developments in global financial markets. Local banks have not had a big exposure to Lehman Brothers.

“The banking system remains generally sound and stable,” he said. So far, three lenders have set aside around $120 million following the US bank’s collapse.

Tetangco also said the non-performing loans (NPL) ratio of banks was close to its level before the 1997 Asian financial crisis of “around 4.0 percent.”

Tetangco signaled that the central bank would sell dollars to support the peso if necessary but monetary policy would remain “sufficiently cautious.” The central bank has been intervening in the foreign exchange market to prevent the currency from falling too fast.

“In the external sector, our policies would continue to be directed at maintaining a market-determined exchange rate with scope for occasional official action to address sharp volatilities in the rate,” Tetangco said.

“While emerging markets including the Philippines have been fairly resilient through the global credit turmoil, they could face a greater risk because of higher borrowing costs and reversal in capital flow.”

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Written by joelguinto

WedUTC2008-09-17T08:34:06+00:00UTC09bUTCWed, 17 Sep 2008 08:34:06 +0000 22, 2006 at 12:45 am09

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