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ASIAN ECONOMIES

Pump-priming steps needed

Asia News Network
(CONTINUED FROM MAY 14)
As the world economy is on a downturn with massive job losses, and exports and remittances being hit hard in most developed and developing countries, Asian economies, like the West, are devising plans for pump priming.
In the first quarter, Singapore's GDP shrank 19.7 percent quarter-on-quarter in its fourth consecutive fall, dismaying many, although there has been some good news on the jobs front.
Falling exports and job losses as a result of the global economic meltdown slowed the economic growth of the Philippines in the first quarter this year.
The South Korean economy, the fourth largest in Asia, escaped the technical definition of a recession -- two consecutive quarters of negative growth. In die final quarter of 2008, the economy had shrunk 5.1 percent.
Indonesian finance minister estimated Asean's largest economy could have expanded by 4.5 percent in the first quarter, even though its exports contracted by almost 35 percent.
Singapore's battle against the downturn is far from over with the national economy set to contract anywhere between 6 to 9 percent this year. The slump this year would be Singapore's worst, beating the record low of -3.8 percent seen pre-independence, in 1964.
In the first quarter, Singapore's GDP shrank 19.7 percent quarter-on-quarter in its fourth consecutive fall, dismaying many.
After a negative 16.4 percent pace in the preceding quarter, economists had expected the momentum of contraction to ease, if not turn altogether in the first quarter. This time last year, it was all about how big the record-busting profits were.
There has been some good news, however, on the jobs front.
According to labour chief Lim Swee Say, nearly 900 workers were losing their jobs per week in the period after the Chinese New Year in February. But, he said in April that this has "dropped noticeably" to about 300 a week.
Lim said measures taken by the government had made a "real difference between cutting jobs to save costs, as seen in other countries and cutting costs to save jobs in Singapore".
Singapore unveiled a S$20.5 billion Resilience Package earlier this year to help firms improve cash flow and preserve jobs. These include a S$4.5 billion Jobs Credit Scheme, which subsidises employers' wage bill for local workers, and a SS650 million Skills Programme for Upgrading and Resilience (SPUR).
According to Prime Minister Lee Hsien Loong, the measures put in place are working and the country has reason to be "quietly confident" of overcoming the downturn, given the nation's "economic strengths".
These include sound banks, competitive industries, flexible wage systems, availability of good jobs and the country's substantial reserves.
In addition, Singaporeans can expect more job-creating projects with construction of the International Cruise Terminal, Asia's first River Safari in Mandai Gardens and a park in the Marina Bay area, besides the two integrated resorts. The health and civil services sectors too are expected to continue hiring.
In the remaining months of this year, financial services and wholesale and retail trade are also expected to grow, although at a much slower pace. And a silver lining is that lower oil and food prices should rein in inflation, which is now tipped to be between -1 and 0 percent instead of 1 to 2 percent.
But its overall impact on the economy is uncertain, given pessimistic forecasts about the world economy. The World Bank predicts that global industrial production will slow by as much as 15 percent this year while global trade will fall sharply. The outbreak of H1N1 and its likely consequences, meanwhile, continue to depress sentiments.
Falling exports and job losses as a result of the global economic meltdown slowed the economic growth of the Philippines in the first quarter this year.
National Economic Development Authority Director General Ralph Recto forecast the economy grew by 2.1-3.1 percent in the first three months of the year, down from the 5.2 percent in the same period last year and 4.5 percent in the last quarter of2008.
But Recto expected GDP to pick up in the later part of the year as key overseas markets recover from the global financial crisis. “We are seeing a bottoming out of the crisis.”
He said some 100,000 Filipino workers were affected by the global crisis in the first quarter, with about half losing their jobs due to company closures or retrenchments.
Despite this, the Philippines remains one of the few countries to actually post economic growth, thanks to the continued strength of consumer spending, he said.
Recto expressed hope that remittances from the millions of Filipinos working over seas would remain strong (for the year, allowing the country to achieve its growth
targets.
Interest rates have also been falling which should further help growth, he added.
In early April, the Philippine government cut its growth forecast for the year to 3.1 -4.1 percent from a previous estimate of 3.7 percent to 4.4 percent.
But the I MF forecast zero GDP growth for the Philippines this year and just one percent in 2010. But the government rejects IMF's forecast, insisting that the economy was still on track to expand by between 3.1 and 4.1 percent this year.
"While the Philippines is not immune to the global economic slowdown, a flat growth, as announced by the IMF, is unlikely,” central bank Governor Amando Tetangco said in a statement.
Tetango noted that the IMF had consistently underestimated Philippine GDP growth forecast by an average of about half a percentage point in the past sevenyears.
He said strong domestic demand "could drive the country's growth". Personal consumption accounts for more than two-thirds of the Philippine economy and had contracted only once, in 1985, over the past 30 years, he said.
Tetangco said Philippine exports, remittances by OFWs (overseas Filipino workers), and a booming business process outsourcing sector, while not immune to the crisis, "retain important elements that render them less vulnerable to the worldwide economic down cycle".
But a senior official said the government might review its growth targets again this year if key drivers worsen further.
“The Development Budget Coordination Committee and the economic managers are closely monitoring global economic developments including indicators from global partners like the multilateral organisations," said economic planning undersecretary Rolando Tungpalan.
Tungpalan said the revised forecasts had factored in lower world output projections, flat growth for this year's remittances by
OFWs, lower exports, and depressed manufacturing.
“Nonetheless, these assumptions show that the economy is still expected to post a positive growth rate, and the government is undertaking initiatives to ensure that this level of growth is realised," Tungpalan said.
He pointed out that remittances still managed to grow by 4.9 percent in February 2009 while the deployment of overseas Filipino workers even posted growth of 30.2 percent compared to 25.3 percent in January.
The Philippines expects exports this year to contract by between 13 and 15 percent. Imports are expected to decline by 12-14 percent.
The Korean economy grew 0.1 percent in the first quarter from the previous quarter, amid growing signs that the economy's slump may be past its worst.
This means that the economy, the fourth largest in Asia, escaped the technical definition of a recession - two consecutive quarters of negative growth. In the final quarter of 2008, the economy had shrunk 5.1 percent
"The pace of the economic downturn has slowed much recently," said Choi Chun-shin, head of the central bank's statistics department.
Evidence is mounting that the government's stimulus packages and the central bank's aggressive monetary easing are aiding the economy, which like other export-driven economies in Asia, was battered by simultaneous recessions in major overseas markets.
Financial markets stabilised and major companies reported better-than-expected performance for the first quarter. Samsung Electronics delivered an earning surprise, reporting 470 billion won (S364 million) in operating profit in a sharp rebound from the
740 billion won deficit in the previous quarter. LG Electronics also beat market expectations with 455.6 billion won in operating profit and Hyundai Motor's 153.8 billion won operating profit compares with the deficits of troubled global carmakers GM andToyota.
Confidence among manufacturers rose to a seven-month high in April, while consumer sentiment climbed to a nine-month high. Industrial production grew for a third month in March from the previous month. Production had fallen 25.6 percent in January from a year ago, the worst on record.
However, policymakers cautioned against premature optimism, saying the economyhad not bottomed out just yet.
"For now, it is difficult to say when the economy will hit the bottom and start to recover," Finance Minister Yoon Jeung-hyunsaid.
"For our economy to ride on the growth track, the world economy should recover and the local economy should see increase in jobs and consumption in earnest," he said.
The government, struggling to spur domestic spending to buffer the sharp decline in exports, has poured about 50 trillion won ($37.2 billion) in fiscal spending, tax cuts, and liquidity injections into the financial market.
The parliament recently approved an extra budget of 28.4 trillion won, about 3 percent of the country's GDP, as the government prepares to provide cash handouts, cheap loans and job training courses coupled with additional infrastructure spending.
The Bank of Korea predicted that the economy will shrink 2.4 percent in 2009, the first contraction since 1998, when it posted a negative 6.9 percent growth in the wake of a foreign currency crisis. In 2008, Korea's gross domestic product expanded 2.2 percent.
Indonesia's economy bucked the sharp downturn in most other Asean countries and the deep recession in the developed economies by continuing to expand by an estimated 4.5 percent in the first quarter of 2009 on the back of robust domestic consumption.
Finance Minister Sri Mulyani Indrawati estimated Asean's largest economy could have expanded by 4.5 percent in the first quarter, even though its exports contracted by almost 35 percent.
Although this growth was lower than the 6.2 percent recorded a year earlier and 5.2 percent in the last quarter of2008, it was still respectable compared to the contraction in both Singapore and Thailand and flat growth in Malaysia.
Private consumption, which accounts for more than 70 percent of GDP, has received a significant boost from spending on campaigning by political parties and legislative candidates for the April 9 parliamentary election.
Most analysts foresee vigorous domestic consumption to continue in the second quarter thanks to the new wave of massive spending on political campaigning in June as parties will again campaign to reach out to the 171 million voters to support their candidates in the July 8 presidential election.
Another $1 billion-also as part of the $6.1 billion fiscal stimulus--is being injected to the economy through infrastruc ture development projects under construction in various provinces.
Barring major election violence that could set off tremendous speculative attacks on the rupiah, the government estimates the economy to end the year with growth range of 4 to 4.5 percent, lower than 4.5-5.5 percent in earlier forecast.
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