Fiscal stimulus plans would do little to boost the country’s economic momentum as monetary tightening starts to take its toll on consumer spending.
Moody’s Investor Services said yesterday the country’s industrial output would slow down in the last months of the year, tracking the general manufacturing slowdown in the region.
Moody’s said that as a whole, Asia’s export growth would further moderate in the last quarter of this year and it would result in the slowing of manufacturing output.
The Philippines, in particular, would be affected by the weakening demand for electronics especially as the global economy continued to lose steam due to the crisis in the financial market.
Moreover, Moody’s said domestic consumption had already begun to ease amid rising unemployment and falling asset prices.
“The recent government stimulus plans will not immediately boost Asian exports and industrial production,” Moody’s said.
The rating agency expects a slowdown in exports in Japan and Hong Kong while Taiwan and the Philippines would likely show sluggish industrial output growth.
In general, Moody’s said Asia’s export outlook is far from optimistic, with outbound shipments expected to further moderate in the last quarter of this year.
“The major buyers of Asian products — the US and Europe — have entered an economic downturn, and there are no signs of a recovery as yet,” Moody’s said. “This will lead businesses to put investment plans on hold, reducing orders for capital goods.”
Moreover, Moody’s said the demand for commodities would ease, as construction lost steam in major economies around the world. The recent decline in commodity prices also caused further damage to Asian economies that were dependent on income from exporting resources.
On the other hand, demand for electronic products was weak in recent months. Moody’s said the global economy has slowed, prompting businesses and households to cut back on discretionary spending.
This particular development would hurt the Philippines where electronic consistently accounted for over 75 percent of total exports.
“Softening global demand for electronic products hurts most Asian economies, as Asian manufacturers are tech specialists, with Japan and Korea covering the high end of the market, while the lower end is shared amongst the ASEAN producers,” Moody’s said.
Amid slowing exports, Moody’s said the country’s industrial production is bound to moderate along with the rest of the region. Although solid domestic demand partly offset external weakness in the first three months of the year, household and business spending showed signs of fatigue in the second quarter.
Moody’s said the previous bout of monetary tightening has already taken its toll on domestic consumption as higher borrowing costs drag on demand.
Several Asian governments have recently announced fiscal stimulus plans in an attempt to bolster the economy but Moody’s said such policies would be insufficient to significantly revive demand.
“The key to a global recovery is for the US—the world’s largest economy—to arrest its downward spiral,” Moody’s said. “This will not happen until at least mid-2009, which means that export orders received by Asia will continue to slide in coming months.”
But an upward trend—for both outbound shipments and industrial production—should emerge in the second half of next year, when economic prospects improve around the world.