'Dutch Disease' seen dragging down Philippine growth

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MANILA, Mar 12 (AFP): Philippine economic growth will fall sharply this year due to an overvalued peso and businesses who fail to re-invest their profits, a Manila-based think-tank said today.
After gross domestic product (GDP) struck a 31-year high with growth of 7.3 per cent in 2007 and inflation at a 20-year low of 2.8 per cent, the Philippine Institute of Development Studies said growth would fall.
It forecast GDP growth this year should drop to 5.9 per cent with inflation rising up to 5.2 per cent.
Institute president, Josef Yap, said the Philippines was suffering from "Dutch Disease", as characterised by a shrinking manufacturing sector and a sharply appreciating peso.
"There indeed will be a slowdown," though growth "will still be a respectable 5.9 per cent in 2008," he told a public forum in Manila.
The forecast was below the official GDP growth target of 6.3-7.0 per cent.
Services and agriculture will continue to be the main drivers, while manufacturing growth would be at an even lower 3.0 per cent from 3.3 per cent last year, Yap said.
He said inflation "will likely breach the (official) target of 4.0 to 5.0 per cent. Our forecast is 4.8 to 5.2 per cent, or at the very least on the high side of the (government) target."