Philippines Lowers 2008 Growth Target a Second Time

By Karl Lester M. Yap
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Aug. 20 (Bloomberg) -- The Philippines cut its 2008 economic-growth forecast for the second time this year as faster inflation hurt consumption, adding pressure on the government to boost spending on food and fuel subsidies to the poor.

Gross domestic product may expand 5.5 percent to 6.4 percent this year, from an earlier forecast of as much as 6.6 percent, Economic Planning Undersecretary Augusto Santos said in a telephone interview from Manila today.

Philippine stocks and the peso fell on concern the government may expand subsidies for the third of the 96 million population that lives on less than a $1 a day, widening its deficit. A 62 percent jump in oil prices in the past year has fueled Asian inflation that may reach a decade high this year, deepening an economic slowdown brought on by falling U.S. demand.

``The government will have to do more pump-priming,'' said Joric Nazario, treasurer at Philippine Veterans Bank in Manila. ``More expenses may mean bigger deficits down the road. It becomes less attractive to hold peso assets.''

President Gloria Arroyo in May pledged to boost investment and lift spending on rice and other subsidies to help Filipinos cope with soaring prices, abandoning her plan to balance the budget this year. Finance Secretary Gary Teves has said the government may post a 2008 deficit of 40 billion pesos to 75 billion pesos.

Intel Chips

The $118 billion economy expanded 5.2 percent in the first three months of 2008, the slowest pace in six quarters. Inflation in the Philippines accelerated to 12.2 percent last month, the fastest pace in more than 16 years, crimping consumer spending that makes up 70 percent of the economy.

Global growth has slowed as the U.S. housing recession hurts demand for made-in-Asia Intel Corp. computer chips and other goods, while record commodity prices leave consumers with less to spend around the world.

Japan's economy, the world's second biggest, contracted last quarter as exports fell and consumers spent less, bringing the country to the brink of its first recession in six years. Europe's economy last quarter shrank for the first time since the introduction of the euro almost a decade ago.

``It's mainly because of the economic slowdown brought about by high oil prices,'' Santos said of the Philippines' new growth forecast. Crude oil reached a record $147.27 a barrel on July 11.

The Philippines imports almost all of its oil. Local pump prices have risen 42 percent this month from a year ago, according to Department of Energy data.

Peso, Stocks

The peso declined 0.5 percent to 45.73 against the dollar at 10:59 a.m. in Manila, according to Tullett Prebon Plc. It had gained as much as 0.08 percent before Santos's comment. The Philippine benchmark stock index fell to a two-week low.

Shares of Bank of the Philippine Islands, the nation's biggest lender by market value, fell the most in almost three weeks in Manila trading on speculation slower-than-expected economic growth will cool demand for loans.

Jollibee Foods Corp., the Philippines' largest fast-food company, last week posted its third straight quarterly profit decline as higher meat and rice prices eroded sales. Globe Telecom Inc., the nation's second-largest mobile-phone company, this month said profit fell 27 percent in the second quarter as Filipinos cut back on calls and text messages.

The government first cut its growth target in May to 5.7 percent to 6.6 percent this year, from 6.3 percent to 7 percent previously. It will release second-quarter economic data next week.

To contact the reporter for this story: Karl Lester M. Yap in Manila at o kyap5@bloomberg.net.