Philippine economy avoids Asia slump

Bloomberg News Service

MANILA — The Philippine economy picked up in the second quarter as growth in agriculture and domestic industries countered a drop in overseas demand that brought some Asian economies to a halt.

Gross domestic product, the broadest measure of a country's economic health, expanded 1.5 percent from the first quarter, seasonally adjusted, after growing a revised 0.1 percent in the first three months of the year, the government said. That matched economists' expectations.

The Philippines is less vulnerable to falling exports than Taiwan, Singapore and Malaysia, whose economies slowed or shrank last quarter. Still, Philippine exports — which make up about 40 percent of GDP — will probably extend their five-month slide as companies can't sell the goods they've made, sapping growth for the rest of the year, economists said.

"The economy is doing better, but it's not roaring ahead," said John Cairns, an economist at IDEAglobal in Singapore. "Exports are under pressure, and there's an inventory overhang."

The central bank said the economy is on track to meet its target of between 3.3 percent and 3.8 percent growth for 2001, compared with last year's 3.9 percent. Economists surveyed by Bloomberg News expect 2.8 percent growth this year.

From a year earlier, the economy grew 3.3 percent in the second quarter, compared with a revised 3.2 percent increase in the first three months of the year.

Exports in peso terms fell 4.1 in the second quarter from a year earlier, after growing a revised 5.4 percent in the first quarter, as orders for electronic parts — which make up about two- thirds of total shipments — plummeted.

Industry expanded 2.2 percent from the first quarter, reversing a revised 0.9 percent decline in the first three months of the year. Still, manufacturers may have built up inventories that they won't be able to sell, analysts said.

"Practically all the growth (in industry) came from the rise in stocks," said Gene Frieda, an economist at Forecast Ltd. "Companies can't sell their goods — that's not a positive thing."

Approval of the government budget in March boosted construction, contributing to growth in manufacturing, Economic Planning Secretary Dante Canlas said. Construction expanded 5.9 percent from the first quarter, reversing a 2.6 percent drop.

Services, which include industries such as banking and telecommunications, expanded 0.8 percent, matching the first quarter's increase.

Agriculture, which makes up about a fifth of the economy, grew 1.8 percent in the second quarter from the first, beating the first quarter's revised 0.1 percent gain.

"Even if (agriculture) is just 20 percent of the economy, it provides income to a larger part of the population," said Ces Tanchoco, chief economist at the Bank of the Philippine Islands. About 40 percent of Filipinos make a living from farming.

While a pickup in building and farm production lifted the economy last quarter, investment and consumer spending may not be strong enough to sustain growth.

A falling peso and accelerating inflation prompted the central bank to end a five-month rate-cutting streak in May. The bank has tried to deter speculation against the peso in recent weeks by reducing the amount of cash in the market, leaving banks with less money to lend to companies.

The currency lost about 5 percent of its value in the second quarter and has weakened 1.1 percent in the past three months.

Price increases and the growing threat of job losses are damping consumer spending. Consumer prices rose 6.8 percent in June from a year earlier, the fastest pace since January. The number of jobless rose to a record 4.5 million in April, bringing the unemployment rate to 13.3 percent, among the highest in Asia.

Fujitsu Ltd., Japan's biggest business computer maker, said earlier this week it plans to suspend one of its Philippine production lines for hard disk drives, putting some of the unit's 5,000 jobs at risk.

Like other electronics makers facing declining sales and shrinking profit, Fujitsu is slashing its work force. The company said last week it plans to fire 11,400 workers in the Philippines, Vietnam and Thailand.