After a 3.4 percent growth in gross domestic product in 2001, DBS forecasts a 3.8 percent growth this year.
Dr. Fong Cheng Hong, DBS’ chief economist, said that the Philippines is hedging on US growth with declining interest rates. She expressed the belief that the worst is behind for the US and that its economy is expected to record a benign growth in 2002.
Consumer confidence has risen from its post-9/11 low. US consumption grew by six percent in the fourth quarter of 2001 versus one percent in the third quarter of the same year.
On the other hand, sentiments among manufacturers have improved significantly and point toward expansion. However, growth in US industrial production for 2002 will be more on inventory restocking and not investment-led growth.
Following signs of economic recovery in the US, the Philippines is expected to trail behind. The Philippine electronics exports, which account for more than 50 percent of the country’s total exports, lags US electronics new orders by about three to six months. The US is the Philippines’ major electronics and semiconductors market.
Moreover, Dr. Fong deemed US assistance and financial aid as positive in building investors confidence. Easing pressure on peso coupled with easing monetary policies should, likewise, boost economic growth.
However, there are few sore points in the Philippine economy such as fiscal deficit, delay in privatization, particularly of the National Power Corp., and the adverse impact of El Niño on agriculture in the second half of 2002.
Nevertheless, the government’s continued efforts to attract foreign investment via fiscal incentives and the prospective pick-up in external demand in the second half of 2002 should help drive the Philippine economy to recovery.