THE United Nations yesterday said the Asia-Pacific region is in a phase of "heightened uncertainty" over the current credit crunch, the threat from rising inflation, and a major economic slowdown in the United States.

This could affect long-term growth if not properly addressed, said the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

The UN arm in the region said it expects the Philippine economy to expand by 6.7 percent this year despite the current slowdown in the US economy, the prime engine of growth in the world.

"The Philippines economy is forecast to grow by 6.7 percent in 2008, marginally down from its fastest growth in over 30 years in 2007, at 7.3 percent, but still backed by strong domestic demand, investment and government consumption," said the UN 2008 report presented at a forum in Pasig City.

The government through the National Economic Development Authority has set an economic growth target of 6.3 to 7 percent for this year.

But Felipe Medalla, former director general of the National Economic Development Authority and a guest speaker at the report’s launching, expressed doubts on the country’s vaunted economic performance.

"The US crisis will definitely affect the region including us though we will not suffer badly since we have a very flexible financial market but 2008 will be worse than 2001 though not as bad as 2004 when the country experienced another economic downturn," Medalla said.

He also said the Philippine economy would grow at 6.7 percent this year, down from 7 percent last year.

Medalla, an economics professor at UP, also pointed to a decline in the country’s exports last year. Even the UNESCAP in its report said actual export growth fell last year from 11.1 percent a year earlier to 6.1 percent.

Another speaker, Jovi Dacanay, a professor of the School of Economics of the University of Asia and the Pacific, said the country would also be affected by the downturn in the US though it would not be by much.

She also said the country’s agricultural sector should get more investments because it is one of country’s prime work generators.

Dacanay said the sector is "creating fewer jobs and taking fewer people out of poverty," adding the trend started way back in the 1980’s.

She added that improving agricultural productivity could result in a decline in inequality in the distribution of economic progress, which has been one of the many complaints aired by the country’s poor.

UNESCAP said with growth in the US slowing down, a decline of 2.5 percentage points of the Philippines’ gross domestic product is to be expected. The US is a major trading partner of the Philippines and other Asian economies.

Inflation is also forecast to rise to 3.5 percent this year, still within the government’s target of 3 to 5 percent, but higher than the 2.8 percent in 2007.

Price increases in food, beverages, and tobacco, will be responsible for inflationary pressure this year.

But UNESCAP said the rest of the region, due to all these factors, will see their growth moderating to 7.7 percent, down from the 8.2 percent last year.

Developed economies in the region, it said, are expected to grow only at 1.6 percent this year compared to the 2 percent in 2007.

"The region is entering a phase of heightened uncertainty in 2008. The sub-prime crisis in the United States, the world’s largest economy is still unraveling and a significant slowdown of the US economy and further turmoil in financial markets cannot be ruled out," it said.

In a worst-case scenario with the US falling into a recession and a deeper depreciation of the dollar, the "impact on much of the region will be harsh," the report said.

It said it could probably result in a 7.4-percentage point decline for Taiwan, 6.6-percentage point decline for Republic of Korea, and 5.2-percentage point decline for Singapore.

"A sharp downturn in the United States would also hit exports from Indonesia, Thailand, the Philippines and Malaysia, though less... for Thailand, the Philippines and Malaysia, the impact on consumption would be relatively light because the countries have the lower exposure to global markets," the report said.

But UNESCAP said there are also many factors that could act as a buffer to cushion the impact of such a downturn.

It cited the region’s healthy macro-economic fundamentals and good fiscal and monetary policies, lack of large budget deficits, a strong domestic demand, and a positive investment climate. – Ashzel Hachero