MANILA – Standard Chartered bank eyes a 3.2 percent expansion for the Philippine economy this year and 5.3 percent next year, but forecasts this to register lower figures if Greece exits from the euro.

In a research note released recently, the bank said the domestic economy could post a 2.7 percent growth in 2012 and 4.4 percent next year if Greece leaves from the European Monetary Union and the contagion is contained.

However, if the contagion spreads to the rest of Europe, the Philippines is projected to grow by 1.8 percent this year and 3.1 percent in 2013.

The report said the current forecast already factored in “a mild recession in Europe and a lack of corresponding easing by the European authorities to support growth.”

It also said that even if Greece exits from EMU and the problem is not contained, Asia will negatively be affected similar to the 2008-09 global economic crisis although there will be a major difference and that is the readiness of Asian governments to address an economic crisis and their ability to “quickly implement fresh stimulus measures.”

The report cited that trade remains the main route of Asia’s exposure to Europe although demand from peripheral Europe is about 2.5 percent of gross domestic product of Asia with Greece only “negligible.”

However, it pointed out that amid Europe’s economic weakness in the recent years, “it remains important to Asian exporters” with demand accounting for 11 percent, lower than the 12.3 percent in 2007, of Asia’s total exports last year.

“Hence, potential contagion via trade is likely to remain high, similar to 2008-09. The indirect impact of weakness in Europe via its effects on the U.S. and China should also be noted,” the report said.

With regards to monetary policy, the report said governments and central banks in the region “would be able to stimulate growth and provide exchange rate stability.”

In the case of the Philippines, the report eyes monetary officials to keep rates steady at record low of four percent for the overnight borrowing rate and six percent for the overnight lending rate until the end of the year.

These rates were already slashed with a total of 50 basis points and 25 basis points, respectively, last January and March, to support expansion of the domestic economy and maintained last April to assess its impact on the economy.

However, the report forecasts another 50 basis points rate cut within the year on possible Greek exit from the euro or 100 basis points cut within the year if the possible Greek exit results to contagion in the rest of Europe.

The report also noted that almost all countries in Asia “have government debt of less than 60 percent of GDP, without accounting for contingent liabilities.”

Similarly, Asian countries, excluding Japan, now have about $4 trillion of foreign exchange reserves, the report said.

These liquidity can easily be used to stabilize exchange rate fluctuations, it said but noted that “central banks are unlikely to resist currency depreciation in the event of capital outflows.”*PNA

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