Philippine Growth Seen Slowing as Remittances Boost Falters
Philippine growth probably eased from the fastest pace since 2010 as the faltering global recovery damps demand for Filipino workers and exports.
Gross domestic product probably increased 5.5 percent in the three months through June from a year earlier, slowing from a 6.4 percent pace in the first quarter, according to the median estimate of 17 economists in a Bloomberg News survey. That would contrast with Thailand, Malaysia and Indonesia, which reported faster expansion in the second quarter. The data is due Aug. 30.
Money sent home is equivalent to about 10 percent of the $225 billion economy and helped the Philippines achieve the fastest growth in Southeast Asia in the first quarter. That support is sputtering as the protracted European crisis brought remittance growth to a 15-month low, crimping sales at companies including Megaworld Corp. and putting pressure on President Benigno Aquino to boost manufacturing and investments.
“The Philippines doesn’t have a rich domestic market and it has been very dependent on external income,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets Ltd. “This reliance on remittances is hurting the economy. Worker remittances will soften because Europe is suffering and to a certain extent, Asia is slowing.”
The Philippine peso fell 0.1 percent to 42.362 per dollar as of 11:01 a.m. in Manila, according to Tullett Prebon Plc, and is the worst performer among Asia’s 11 most-traded currencies this month. The yield on bonds due July 2031 dropped to a two- week low, according to Tradition Financial Services.
Foreign funds bought a net $1.83 billion of bonds and stocks from January to July, 31 percent lower than a year ago, according to central bank data.
Philippine exports rose 4.3 percent in June from a year earlier, the slowest pace in three months. Bangko Sentral ng Pilipinas cut its benchmark interest rate to a record-low 3.75 percent in July, joining nations from China to South Korea in shoring up growth amid the global slowdown.
Aquino aims to bolster expansion to as much as 7 percent next year from a goal of 6 percent this year to boost incomes and reduce poverty. The government awarded contracts to build about 9,300 classrooms this month as part of efforts to draw more than $16 billion of investment in airports and roads.
The president is also accelerating asset sales, with an aim of raising about 2 billion pesos ($47 million) each in 2012 and 2013 from privatization. Standard & Poor’s raised the nation’s credit rating to one step below investment grade in July, citing easing fiscal vulnerability as debt is reduced.
Aquino has pledged to rid the nation of corruption to boost investor confidence. He appointed Maria Lourdes Sereno last week as the nation’s first female chief justice after Renato Corona, the former top judge, was removed from office for illegally concealing his wealth.
Remittances increased 4.2 percent to $1.81 billion in June, and the central bank forecasts an increase of 5 percent this year compared to 7.2 percent in 2011. A study by the monetary authority last month showed the funds dilute the effectiveness of the policy rate even as they bolster consumption and growth.
“Remittance growth is unlikely to return to the double- digit growth rates seen from 2002-2008,” according to a report by analysts at DBS Group Holdings Ltd. last week. “Working domestically may become more attractive to locals as employment opportunities grow. We suspect that remittances will slowly diminish in importance in the coming years.”
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