Despite the typhoons that devastated the country, the Philippine economy has remained resilient and avoided the recession which gripped the western economies.

What kept the domestic economy afloat are the strong remittances from the overseas Filipino workers (OFWs), the services sector, agriculture and government spending on infrastructure projects.

The key growth drivers for 2009 were trade, business process outsourcing (BPO), construction, mining and quarrying, and private and government services."

NEDA Director-General Augusto Santos has admitted that the impact of the typhoon Ondoy could reduce the real gross domestic product (GDP) growth rate in 2009 by at least 0.043 percentage point.

Remittances from overseas Filipino workers (OFWs) could help maintain the domestic economy’s growth target of 0.8 to 1.8 percent for 2009, said Santos.

Typhoon Ondoy had damaged at least P108.9 million worth of infrastructure and crops and affected about 90,000 families.
The World Bank (WB) has projected a lower growth of 1.4 percent growth of the domestic economy for 2009 and 3.1 percent in 2010 despite the impact of the typhoons.

“Remittances are staying strong. Government consumption and public construction will continue to benefit from the national government's spending. “We believe the government growth forecast for 2009 to be entirely feasible," said World Bank Country Director Bert Hofman.

Eric Le Borgne, World Bank Senior economist in the Philippines, said that the export and the corporate sectors are showing signs of recovery. Exports to developed countries like the United States and Germany have improved since August.

"While SMEs, especially those which are export-oriented, are still reeling from the crisis, the corporate sector focusing on the domestic market is showing improved profitability. With financial markets also on the rebound, banks are able to turn around losses experienced in the last quarter of 2008," Le Borgne.

The property sector remained strong owing to the continuing demand for condominiums and houses from expatriate Filipinos as well as office spaces from the bourgeoning business process outsourcing industry.

The FMIC and UA&P capital market research was more optimistic as it forecasts a 3.8 percent growth in the fourth quarter of the year after posting a 0.8 percent in the third quarter.

A marked increase in spending due to the early election campaign period, the Christmas season, and flooding rehabilitation work may largely offset the output loss from agriculture and machinery and equipment damage.

“We can still expect economic activity to gain more strength in the fourth quarter,” said FMIC and UA&P.

One good indicator is the increase in total electricity from 0.3% in second quarter to 4.3% in the third quarter.

“It is safe to conclude that economic activity in the country picked up in the third quarter with residential electricity sales up by 6.5% and commercial sales up by 4.3%. This is also the quarter in which the industrial sector turned positive, growing at 1.7% for the 3rd quarter,” FMIC and UA&P said.

“Although the country may have suffered from two devastating typhoons towards the end of September, the third quarter has been the best quarter for the economy so far this year.”

After months of decelerating consumer price increases, inflation finally kicked in as it accelerated from 0.1% in August to 0.7% in September.

Resilient economy

The Philippines has not been as battered as its export-dependent neighbors in East Asia under the lingering global economic retreat.

“Ironically, structural problems had shielded the domestic economy from the harshest effects of the crisis, said Joseph Yap of Philippine Institute of Development Studies (PIDS) on the impact of the global financial and economic crisis on the country.

By the second quarter of 2009 the domestic economy has shown signs of recovery. From an almost zero growth in the first three months of the year, gross domestic product (GDP) had grown by 1.5 percent.

In comparison, Hong Kong, Japan, Korea, Malaysia, Taiwan, and Thailand continued to incur negative growth.

Besides the Philippines, Vietnam, mainland China, India and Indonesia posted positive growth that was even higher than the Philippines for the first half of this year.

Yap attributed the resiliency of the economy to its dual nature. Explaining a dual economy, the economist said that there is a large segment of poor families that have not been touched by the ebbs and flow of the mainstream economy.

The poor made up 28.1 percent of all Filipino families during the boom years of 1994 to 1996, increased to 28.4 percent during the Asian crisis between 1997 and 2000, declines to 24.4 percent during the 2001-2004 recovery period but again increased to 28.9 during the stable period of 2005 to 2007 when the economy posted is highest ever growth rate.

The Philippine economy is unlike all other economies in the region in that, it behaves more like the Latin American economies than the dynamic economies in the Asian region.

“There is a big number of poor families, those who survive below 1 US dollar a day who stay poor no matter what happens to the national economy,” Yap explained.

The net impact of such situation is that, the Philippines has harbored the biggest percentage of poor people in this corner of the world.

Comparing living standards in the region, Yap disclosed that among the original ASEAN five members plus Vietnam, the Philippines now has the highest poverty rate at 30 percent or close to one third of its 90 million people.

The PIDS economist suggested that the Philippines can make the present crisis and the region's drive to recover from it as a platform on which it should correct the duality of the Philippine economy.

RP avoided recession

The Philippines had never entered the economic recession amid the devastating floods and typhoons.

The World Bank (WB) noted that the country has avoided a recession in 2009 due to the renewed consumer spending and the timely monetary and fiscal stimuli by the government.

“The Philippine economy can grow more closely to its potential if structural bottlenecks, including inadequate infrastructure particularly in transport and energy, a weak investment climate, and historically weak public finances are addressed,” said WB.

Socio-economic Planning Sec. Augusto Santos noted that the third quarter economic performance was a deceleration from the strong growth of 4.6 percent in the third quarter of 2008.

The government and private sector programs, flexible work arrangements, and the front-loading of infrastructure projects under the Economic Resiliency Plan (ERP), kept the economy’s growth and employment afloat during the global recession.

In contrast, several other economies are still experiencing massive layoffs and all-time high unemployment rates.

The Philippine economy joined other economies with positive GDP growth in the third quarter.

Based on year-on-year estimates, the other countries that posted positive growth rates were China (8.9%), Vietnam (5.8%), Indonesia (4.2%), Singapore (0.6%), and, South Korea (0.6%).

Overseas Filipinos’ (OF) remittances boosted the gross national product (GNP) growth to 3.5 percent in the third quarter. Total OF remittances in dollar terms grew by 6.9 percent in the same quarter, which mainly caused the 26.0 percent growth in net factor income from abroad (NFIA).

The economy’s growth was supported by services (4.0 percent) and agriculture (1.6 percent). The industry sector still contracted (-4.4 percent), pulled down by manufacturing (-7.6 percent) and utilities (-2.2 percent).

Private consumption was modest at 4.0 percent while government consumption remained healthy, at 7.9 percent.

Construction investments remained afloat at 1.7 percent, as the cushioning effect of the stimulus package continued. External trade growth is improving yet still remains negative, at -13.6 percent for total exports.

Santos said the global crisis is not over, but the worst is over. "We have reasons to be more confident."

He is confident that the prospects remain buoyant for new markets of agricultural products, tourism’s adventure travel, service quality improvements, campaign spending till 2010, growing demand for climate-adaptable production, renewable energy investments, and biotechnology applications on food production.

OFW remittances help economy afloat

The support of overseas Filipino remittances has kept the domestic economy afloat especially during global economic downturn.

The Philippine growth in the context of an ongoing global economic crisis has advantages compared to its Asian neighbors.

"The Philippine economy is not solely reliant on exports, unlike its Asian neighbors such as Taiwan, and Singapore. Overseas Filipino remittances has helped the Philippine economy and in a way 'covered' the trade gap," said Santos.

“Our trade gap in terms of commodities is roughly about US$5.5 billion per annum, but the overseas Filipinos are remitting about US$12 billion annually.”