Thursday, August 30, 2012

Philippine economy seen cooling but Southeast Asia resilient for now

..MANILA, Aug 30 (Reuters) - The Philippine economy likely

slowed in the second quarter as exports slumped, but strong

domestic demand and investment growth are still expected to

cushion much of Southeast Asia from the worst of the global

downturn in coming months.

Data on Thursday is expected to show the economy expanded by

1.1 percent in April-June from the first three months of the

year, down from first-quarter growth of 2.5 percent, which was a

two-year high, according to a Reuters poll of economists.

From a year earlier, the Philippines economy probably grew

5.7 percent, weaker than the first quarter's 6.4 percent surge

but still far stronger than most developed countries and some

much larger emerging economies such as Brazil and Russia.

Riding a wave of strong domestic consumption, higher public

spending and investment inflows, much of Southeast Asia was

strikingly buoyant in the second quarter, with Indonesia,

Malaysia and Thailand all posting stronger-than-expected

economic expansions. Tiny, trade-reliant Singapore has been the

only outlier, struggling to avoid slipping back into recession.

While export data may not be pretty in coming months,

economists say longer-term fundamentals remain strong enough in

the region to continue attracting foreign investors.

"There is a re-rating going on in Indonesia and the

Philippines, with Indonesia recently upgraded to

investment-grade (credit) status and the Philippines right

behind. Things have really clicked in those economies," said ING

economist Tim Condon in Singapore.

"Unless you get a September 2008-style global panic, there

is enough resilience in these countries' domestic demand to

offset export weakness," Condon said, noting he expected

external demand would stagnate for the rest of the year before

stabilising in 2013.


While not immune to a sharp or prolonged global downdraft

-- Indonesian exports in June fell 16 percent from a year

earlier -- many Asian economies have two considerable advantages

over their developed counterparts in the West in the current

downturn: growing ranks of more affluent consumers and

governments with healthy finances which are willing and able to


The Philippines, where money sent home by citizens working

abroad fuels domestic consumption, in June received the biggest

amount for any month, $1.81 billion. That took remittances in

the first half of 2012 to $10.1 billion, up more than 5 percent

from last year.

Government spending in the first seven month of 2012 --

excluding interest payments -- surged 15.2 percent from a year

earlier, also helping offset the impact of faltering exports and

weaker farm output.

In Indonesia and Malaysia, the story is much the same: there

are jumps in consumption as well as surging public and private


Condon at ING expects Indonesia's economy to grow by around

6 percent this year and the Philippines by 4.5 to 5 percent,

with solid outlooks for 2013, but added that Malaysia's

trajectory may be more uncertain if the government ratchets back

spending after coming elections, which are due by April.

Indonesia's growth has been so robust, in fact, that the

central bank recently publicly rejected concerns among some

market watchers that the economy is overheating.

The central bank forecasts full-year loan growth at 25-26

percent this year, and investors have been pouring into its

equity and debt markets.

Some economists say the central bank will need to tighten

policy by the end of the year to dampen surging demand for

imports that created a record trade deficit in June. But most

see pro-growth Bank Indonesia keeping record low interest rates

into 2013, to allow local consumption to keep the economy


The government expects spending by a burgeoning middle class

and foreign investment interest to keep growth at between 6.3

percent and 6.5 percent this year and to drive it higher to 6.8

percent next year.

Thailand is more of an enigma, with weak global demand

biting deeper just as industry looks to fully recover from

devastating floods in late 2011. Still, the local stock market

is the best performer in Asia, having surged more than

20 percent so far this year.

The government reported on Wednesday that exports fell 4.46

percent in July from a year before as Europe's debt crisis

stifles demand.

Even so, unless there is a sharp deterioration in the euro

zone, Thai GDP is likely to see solid growth of 5.7 percent this

year, according to the central bank.

In part, that reflects a return to normality after a series

of unnatural events that buffeted the economy in 2011, starting

with the Japanese earthquake and tsunami in March and the

disastrous flooding at home that closed seven huge industrial

estates from October.

Exports account for more than 60 percent of Thailand's gross

domestic product each year, compared with around 20 percent for

Indonesia, where domestic consumption accounts for about 55

percent of GDP.