RP recovery to slow down next year - IMF

The International Monetary Fund (IMF) said recovery in the Philippines will slow down next year to a more "modest and subdued" level as the country loses momentum due to the lackluster performance of the US and Japanese economies.

Asia will be the world’s best performer in 2003 but the IMF said the growth performance will be uneven throughout the region, with some economies growing significantly faster than others.

According to Charles Adams, assistant director of IMF’s Regional Office for Asia and the Pacific, the message was of "cautious optimism" although recovery was expected to continue until 2003.

"World economy would not be bouncing back but we expect the economic recovery to continue," Adams said.

Adams said, however, that there is a significant downside risk due to geopolitical tension precipitated by the conflict between the US and Iraq.

In its World Economic Outlook, the IMF said it expects world economy to reach four percent by 2003, up from less than three percent this year although less than the 4.7 percent peak growth recorded in 2001.

In 2003, the US economy is expected to grow by less than three percent while the Japanese economy was projected to reach a two-percent growth and the European economy a little higher than Japan.

The region referred to by the IMF as the "Developing Asia", according to Adams, would grow by at least 6.1 percent, fueled largely by the six to eight percent growth of the Chinese economy.

In terms of industrial production, Adams said Asia is the best global performer largely because of increased intra-regional trade, especially from China.

Adams explained that China has been largely unaffected by the global slowdown and there was also a dramatic increase in intra-regional trade as China sourced the bulk of its requirements from its neighbors for re-export to the US.

This means that although China has been the powerhouse of the Asian economy, it is still not immune to the economic developments in the US which is still its biggest market for exports.

Adams also warned that despite its increasing role in the region, China’s imports are still not substantial enough to act as a buffer in case the US economic slowdown worsens.

"For some countries in Asia, the slowdown has been very sharp and across the region, the recovery will be at varying degrees," Adams said. "We have patterns of pick up but softer than we had expected earlier this year."

Adams said the same expectations apply on the Philippines which will be affected by geopolitical developments in the Middle East. "The country is still dependent on US demand," he said. "The recovery is already very modest, we expect it to be even more subdued."

On the other hand, Adams said the prevailing low inflation in Asia has allowed monetary and fiscal policies to be more flexible and this would give the region an additional advantage.

"The fact that inflation is so low has raised some doubts in some people’s mind that we are on the verge of deflation but I think that may be an exaggeration," Adams said.