MANILA, Philippines – Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the Philippines, as well as its Asian neighbors, should look more to their domestic demand and end dependence on exports.
Tetangco is attending a meeting of central bankers in Europe and said there is an emerging sentiment among economic planners that Asia’s dependence on exports has made it vulnerable to external crisis.
“There are views that Asia must boost domestic consumption and end its dependence on exports,” Tetangco said. “In the longer term the view is that Asian economies may need to look more at their own domestic economies as the engine of growth.”
Asia is the world’s most populous continent and the Philippines alone has a market of 95 million – strong enough to support domestic economic growth and this, in fact, has been the main driver in recent decades.
But Tetangco admitted this would take time, especially since the entire economic machinery in the region is geared towards the European and North American markets.
In the meantime, Tetangco said that since the current financial crisis had been primarily a crisis of confidence, short-term recovery would be driven by improvements in consumer and business confidence.
“Any recovery in global demand will greatly influence the recovery process,” Tetangco said. “Overall, any real economic growth momentum would have to be a careful balancing of growth drivers from both external and domestic demand.”
According to Tetangco, counter-cyclical support to aggregate demand in the form of expansionary fiscal and monetary policies, along with strong policy actions to ensure financial and corporate sector health could contribute to faster recovery.
“Maintaining an expansionary monetary policy stance to the extent that the inflation outlook allows, could support market confidence and assure households and businesses that risks to macro-stability are being addressed decisively,” he said.
As often pointed out, Tetangco said another way to support recovery would be through greater spending on public and social infrastructure.
“There is also need for more investment in education and social safety nets to give consumers the confidence to spend,” Tetangco added.
Tetangco said the global recovery is projected in 2010, as global growth is expected to pick up supported by expansionary fiscal and monetary policies.
Beyond this, Tetangco said the global recession is a signal to economic planners to reassess their growth strategy going forward.
The International Monetary Fund (IMF) itself said earlier that newly-industrialized countries in the region are expected to experience a long and severe recession because of their high exposure to the global advanced manufacturing cycle and their extensive global financial links.
Among the ASEAN-5, IMF said Thailand, Malaysia, and the Philippines are going to be hit more severely by the global crisis, mainly because of their higher dependence on advanced manufacturing exports.
The IMF said there are large spill-overs from the external sector to domestic demand and this affected consumers and investor confidence.
In Thailand and Malaysia, the IMF said growth would be negative on average in 2009 and would resume firmly only next year, as the effect of strong fiscal efforts eventually complement the improvement in global conditions.
The IMF is expecting the Philippines economic growth to decline by half a percent this year as waning remittances – an important driver of consumption – would dampen domestic demand.
By contrast, the IMF said growth in Indonesia and Vietnam would remain positive over the next two years, reflecting the relatively lower share of advanced manufacturing in these economies and the higher contribution to growth from domestic demand.
But the IMF said the risks to the outlook for the region remained “tilted squarely to the downside”, adding that the key concern was a deeper and longer recession in advanced economies outside Asia.
The Fund said this could reduce external demand further with negative repercussions on exports, investments and growth. In addition, the fund said further deterioration in global financial conditions might additionally tighten financing constraints.