Leading indicators point to 4th quarter slowdown

Business World

PHILIPPINE economic growth could weaken further in the fourth quarter with the composite leading economic indicator (LEI) -- the government’s key tool for short-term forecasting -- rising at its slowest pace in five quarters.

The latest LEI, which the National Statistical Coordination Board released yesterday, put the index at 0.026, up from the third quarter’s revised 0.022.

It marked the second quarter in a row that the index -- which tracks the performance of 11 economic indicators -- was in positive territory but the gain was the slowest since a rebound began in the fourth quarter of last year.

The third quarter figure was substantially up from the second quarter’s -0.073, itself a large gain from the first quarter’s -0.302 that was also superior to the -0.557 recorded for the final three months of 2009.

The slowdown was consistent with expectations that fourth quarter gross domestic product (GDP) growth would be lower than gains posted earlier in 2010. GDP grew by 7.8% in the first quarter, 8.2% in the second, and by 6.5% in the third.

Official fourth quarter growth data is scheduled to be released in January next year.

"Weak global recovery due to US and Europe problems," as well as "government effort to control spending" could weigh on growth prospects, National Economic and Development Authority (NEDA) Deputy Director-General Augusto B. Santos said.

"GDP growth [in the fourth quarter] will still be positive but will slow down," he added.

Socioeconomic Planning Secretary Cayetano W. Paderanga last month offered a "moderate growth" forecast of "around 6%" for the last three months of 2010, which would keep GDP growth above the 5.0-6.0% target.

An economist said key growth drivers, which helped earlier in the year, would be a no-show in the fourth quarter.

"The drivers of growth in the first half of the year are gone," said University of the Philippines economist Benjamin E. Diokno.

"Public spending has slowed, election-related spending is gone, manufacturing -- which rebounded strongly on the back of declines in 2008 and 2009 -- slowed and inventory stocking is slowing," he added.

Of the 11 indicators, only six buoyed the index. The largest contributors were tourist arrivals, number of new businesses, foreign exchange rate, stock price index, hotel occupancy rate and electric energy consumption.

Inflation -- from both wholesalers and consumers’ perspectives -- as well as terms of trade index, money supply and imports pulled down the LEI.

Economists polled yesterday by BusinessWorld estimated GDP growth falling within a 5.0-7.0% range in the fourth quarter.

Economic conditions could worsen in 2011, with economists forecasting growth at 4.0-5.0%, below the government’s official 7.0-8.0% target.

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