Government scales down economic targets for next year

Government will scale down its economic growth targets for 2001 from the original target of four-to five-percent growth in domestic production to the emerging target of three to 3.5 percent, tempered by the projected slowdown in agriculture and industry.

The National Economic and Development Authority (NEDA) disclosed in a press conference yesterday that the emerging trend based on 2000 growth figures point to a slower growth in gross national product (GNP) and gross domestic product (GDP) for 2001.

Although 2001 is an election year, NEDA Director General Felipe Medalla said agriculture and exports are not expected to perform as well next year as they did this year as the country braces against the projected slowdown in the US economy aggravated by the drought expected to hit agricultural production.

Medalla told reporters that the economy faces two major downsides in 2001, making it less likely that the Philippines would hit the high end of government’s original GDP target of four to five percent and GNP target of 4.5 to 5.5 percent.

According to Medalla, agriculture performed exceptionally well this year but the sector is not expected to perform as well next year as the El Niño weather phenomenon hits the equatorial regions.

Medalla said agriculture is expected to grow by only 1.5 to 1.7 percent in 2001, after growing by three percent this year. Industry is also expected to slow down even further and grow by only 2.4 to 3.3 percent against the original target of five to six percent.

Even the services sector is not expected to grow as briskly as projected in 2001, with the emerging target now at four to 4.4 percent compared to the original target of 4.5 to 5.5 percent.

Medalla said exports would continue to grow and maintain its present growth rate of 14.5 percent, but this will be tempered by an anticipated reduction in dollar value of exports, especially electronics which account for 70 percent of total exports.

In dollar terms, Medalla said exports would grow at a slower rate eight to nine percent in 2001.

On the other hand, Medalla said the target inflation rate for the whole of 2001 would likely go up from 5.5-5.6 percent to the emerging target of 6.5-7.5 percent. Likewise, the projected interest rate for the benchmark 91-day Treasury bills would go up from the original target of 8.9 to 9.9 percent to the emerging target of 11 to 12 percent.

Medalla said agriculture was the one saving grace this year, performing well enough to prevent food prices from spiraling out of control. "We cannot expect the same cushion next year because there is a drought," he said.

Moreover, Medalla said export performance will not be as brisk next year as the US economy slows down due to fears of overheating. The US economy had slowed down to 2.4 percent in summer, the slowest in four years. Sales have begun tapering off and performing far less than expected, ultimately affecting countries exporting goods into the US.

Because the US is still the country’s biggest export market for its top exports – electronics, garments and agriculture – Medalla said exports would also suffer the effects of the slowdown.

The only balancing factor, Medalla said, was the continuing strength of the euro which he said augurs well for the Philippine peso as well as Philippine exports to Europe.

NEDA data shows that agricultural output has exceeded pre-crisis El Niño levels in 1997, due mainly to the 7.1-percent growth in palay production. Medalla explained that as a result, food prices have remained stable despite the wild fluctuation in the peso-dollar exchange rate, Mindanao crisis and the increases in oil prices.

"This also explains why our exports have remained strong," Medalla said. "Export industries have actually benefited from the depreciation of the peso because there has been no need to increase wages as long as food prices are stable."

By yearend, Medalla said GDP is likely to hit the low-end of government’s revised target and grow by 4.2 percent based on the emerging fourth quarter growth of 3.4 percent, with agriculture growing by 2.4 percent, industry by 2.9 percent and services by 4.2 percent.