MANILA, April 7, 2009— The World Bank’s latest East Asia and Pacific Update, titled Battling the Forces of Global Recession, commended the Philippines and other middle income countries in East Asia, including Thailand, Malaysia, and Indonesia, for stepping up efforts to cushion the impact of the full-blown global financial and economic crisis on the poor even as the Region is increasingly affected by weakening exports, declining private investments, slumping domestic demand, and worsening unemployment.
The report cited the Philippines’ and Indonesia’s cash transfer programs, China’s stimulus package, and Cambodia’s food-for-work assistance as examples. Monetary easing across the Region, facilitated by sharp decline in prices of food and fuel, has helped limit the impact of the global crisis.
According to the report, the Region’s real Gross Domestic Product (GDP) will grow by 5.3 percent in 2009, down from 8 percent in 2008 and 11.4 percent in 2007. The report projects a 1.9 percent real GDP growth rate for the Philippines, down from 4.6 percent in 2008 and 7.2 percent in 2007. Among the worst hit middle income countries in the Region are Malaysia, Thailand, and Cambodia, whose economies are projected to contract, in line with global trends.
The World Bank forecasts the global GDP to shrink by 1.7 this year, the first decline in world output since the Second World War.
"The measures the authorities across the region have taken to counteract the crisis are helping to cushion the impacts on the most vulnerable people,"World Bank’s Vice President for the East Asia and Pacific region, Mr. Jim Adams said. "With unemployment likely to increase – especially as jobs in manufacturing and construction disappear - social protection efforts will have to expand to meet very real human needs.”
Mr. Bert Hofman, World Bank Country Director, said that the Philippine Government’s reaction to the crisis comprise a host of measures, including various actions to boost the resilience of the financial sector, a fiscal stimulus, among others through accelerated budgetary spending this year, a scaling up of its conditional cash transfer program, and measures to help returning overseas Filipino workers who have lost their jobs. “These are timely and appropriate responses to the rapidly deteriorating external environment, probably the worst global economic and financial crisis in generations,” said Mr. Hofman.
The East Asia and Pacific Update says the impacts of the crisis in advanced countries were transmitted to the economies of the Region with unusual speed. In the Philippines, the global financial crisis led to sharp contraction in domestic asset prices and a disruption of credit markets, bringing corporate and financial sector earnings down and public investments on hold. The global recession, the report added, is taking its toll on the real sector as exports and remittances fall and unemployment and underemployment rise.
Mr. Eric Le Borgne, World Bank’s senior country economist, said export-oriented firms, especially semi-conductor manufacturers, have reported large losses in revenues due to the collapse in global demand. Semiconductors and other electronics manufacturers, such as automotive parts which account for 60 percent of total exports, have seen the demand fall by as much as 60 percent in recent months.
“Other export industries reporting a sharp downturn in activity include the labor-intensive garments, furniture, footwear, and handicraft industries,” said Mr. Le Borgne. “The agribusiness and mining sectors have also been affected with the fall in commodity prices, while the property sector is exhibiting early signs of impending localized stress.”
Despite these difficulties, Mr. Le Borgne said that to date companies listed on the stock market as well as banks have weathered the global economic and financial shocks well, stressing that “the financial sector remains financially sound with capital adequacy ratio higher than required.”
The impact of the crisis on the East Asia and the Pacific Region, the report said, could have been worse were it not better prepared for this shock after the 1997-98 Asian financial crisis. The report added that over the last decade, countries in the Region, including the Philippines, strengthened their external balances, increased foreign exchange reserves, reduced government debt, and improved banking supervision.
The East Asia and Pacific Update says that while global environment remains uncertain, there are emerging signs that China’s economy is bottoming out, a trend that will contribute to the Region’s stabilization and possibly recovery.
The report concludes that as the world economy slowly recovers, the Philippines and other countries of developing East Asia can achieve high rates of economic expansion to the extent that they are able to extract more growth from domestic demand, boost competitiveness, penetrate new markets, and further improve the attractiveness of the Region as a key destination for foreign investment.
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