FORECASTS made by economists, banks, other institutions and the government point to a consensus: economic growth for 2008 in terms of gross domestic product (GDP) will be at least 4 percent, but will likely be a bit higher.

The government’s latest target is 4.1 percent to 4.8 percent. The high end is also the highest among the six forecasts that I gathered; the lowest is from the World Bank at 4 percent.

Two economists from the University of Asia and the Pacific, Victor Abola and Bernardo Villegas, made slightly different forecasts, 4.5 percent and 4.6 percent, respectively.

The Asian Development Bank (ADB) expects GDP growth at 4.5 percent, but has noted that the figure came out before the US financial crisis worsened in September, so the full-year figure should be lower than 4.5 percent.

On the other hand, Citigroup raised its forecast from 4.1 percent to 4.3 percent after the release of the government’s economic report, which showed that GDP grew by 4.6 percent in the third quarter, which was above expectations. It was lower than the 7.1-percent growth in the third quarter of 2007, but it was the high end of the government’s 3.8- percent to 4.6-percent estimate for the third quarter of 2008.

Compared with some of our neighbors, our performance in the third quarter was not bad. Malaysia’s GDP grew by 4.2 percent, Thailand by 4 percent and Indonesia by 6.1 percent. South Korea also posted a 4-percent GDP growth, but Hong Kong slowed down to 1.7 percent and Taiwan almost screeched to a halt, at 1
percent.

I’m tempted to predict a higher growth rate than 4 percent, given the “unexpected” result for the third quarter. I remember that the 7.3-percent (later revised down to 7.2 percent) economic growth for 2007 was also “unexpected.” But I don’t want to be overconfident, although I hope the economy will pull another pleasant surprise when the year-end figures come out.

The bad news, of course, is exports. Merchandise exports grew by just 1.9 percent for the first 10 months of 2008, lower than the government’s forecast of 2 percent to 4 percent for the whole of 2008.

But some export products are posting double-digit growth rates, which should provide direction to the government’s export drive. Shipments of agro-based products increased by 25.9 percent during the first 10 months, and petroleum products by 41.1 percent. Despite the decline in world prices, exports of mineral products posted a 7.2-percent increase.

Banks were also hit, particularly those that were exposed to the collapsed Lehman Brothers Holdings, although they were able to cover their losses. They’re still expecting fair profits for the whole year.

Securities trading, which generated huge profits for the banks in 2007, is gone. So the banks returned to their traditional business—lending—which is good because it means more accessible loans for businesses.

According to the Bangko Sentral ng Pilipinas, bank lending increased by 24.8 percent in September 2008. Wholesale and retail trade, as well as transportation, storage and communications, led the borrowers.

Elsewhere in the world, credit conditions have been shutting down in the wake of the financial crisis in Europe and the US.

Overall, the banking industry is steady and should be able to weather the challenges posed by the global financial crisis. Following the 1997 Asian financial crisis, Philippine banks have built up capital so that the sector is well-capitalized with a system-wide capital adequacy ratio (CAR) of 15.5 percent, higher than the 10-percent minimum CAR set by the Bangko Sentral.

Real-estate developers, which are usually the first to be hit hard by a crisis, are holding. I have not seen any major work stoppage or any major company going bankrupt. In addition, the major players were able to raise money from the stock market, so they are fairly liquid. That means housing, which has been enjoying a boom for the past four years, is still doing well. That also means construction, a big job generator and business multiplier, is also doing well.

As I have said before, during a crisis, such as what the global economy is undergoing now, we should focus on the domestic economy. A recent note from JP Morgan said the Philippines is in a strong position to weather the global downturn, with 76 percent of the economy driven by private consumption and 50 percent by services, which are less vulnerable to external shocks. Remember, we are the 13th-largest country in the world in terms of population, which currently exceeds 80 million. That’s a big market for any business.

Of course, what will fuel consumption and consumer spending, including housing, are the remittances from overseas Filipino workers, which have been growing in double digits. We’re on track to breaching the $16-billion mark this year, compared with $14.7 billion last year—and that’s only accounting for money sent through banks; money brought in by friends is expected to contribute significantly to total remittances.

So while the US, Japan and some European countries have gone into recession and other developed countries are scrambling to save their banks and industries, 2008 will be another profitable year for business in the Philippines, although not as big as what it earned in 2007, but enough for year-end celebration.

We’re doing well; we’re OK.

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