Growth slower in Q1 on weak exports, high oil prices

MANILA, Philippines — The Philippine economy grew at a slower pace of 5.2 percent in the first quarter from a year earlier due to weak exports and rising food and energy prices, government data showed on Thursday.

Seasonally adjusted, the gross domestic product (GDP) grew just 0.8 percent in the first quarter from the last quarter of 2007.

The annual growth was at the lower of the government’s and economists’ forecasts. The government was looking at annual growth of 5.2-6.2 percent for the quarter. Economists had expected growth to come in at 5.2-6.25 percent.

The services sector expanded 6.9 percent from a year earlier while industrial output grew 3.9 percent. Farm output, which accounts for a fifth of GDP, rose 3.0 percent.

“Two factors: there was weak external demand and high oil and food prices,” Augusto Santos, acting chief of the National Economic and Development Authority (NEDA), said of the slowdown.

On Wednesday the government cut its economic growth target and ditched its goal of achieving a balanced budget this year due to the impact of a US-led global slowdown and soaring inflation.

“There will be downside disappointment,” said Vishnu Varathan, an economist at Forecast Pte. “The danger now is that consumer sentiment gets impaired by inflation despite robust remittances [from overseas Filipinos].”

“Inflation unfortunately also undermines investment sentiment as well as portfolio flows and with the government having plans to up loans, there is always a fear that it ‘crowds out’ investments at a difficult time.”

“The number is within our expectations. It tells us that the economy is suffering from the current global slowdown led by the US,” said Simon Wong, economist at Standard Chartered Bank in Hong Kong.

“With this, we see the Philippine economy growing at just 4.0 percent for the full year as exports will further contract. The downturn in the US is only the beginning of a bigger slowdown.

“The first phase was a result of the financial crisis while in the latter stage, this will spread to other aspects of the economy. It will slow demand for foreign goods,” said Wong who is looking at export growth of just 3.0 percent this year.

The government said this week it expected growth of between 5.2 and 6.2 percent in the first quarter from a year before.

The government now aims for GDP growth of 5.7-6.5 percent in 2008, compared with the previous target of 6.3-7.0 percent.

“People are tightening their belts,” Santos told a news briefing, saying growth in personal consumption expenditure slowed to 5.1 percent in the first quarter from 5.9 percent a year earlier and 6.1 percent in the fourth quarter.

Santos said money sent home by Filipinos working abroad, which have been boosting domestic demand, continued to increase but recipients might not be spending as much as they used to or their purchasing power might have been eroded by a stronger peso.

“The government has committed to fine-tune the fiscal program in order to achieve the new growth target.

“The government will be spending more particularly for the most vulnerable sector of the society. We’re looking at a budget deficit equivalent to about 1.0 percent of GDP this year, or roughly P75 billion ($1.7 billion),” said Santos.

Santos could not provide more details about the additional spending, but he said it would be funded by revenue from asset sales and new borrowings both foreign and domestic.

“We hope to see higher growth in the second quarter as the government spends more on infrastructure and social services to help affected sectors cope with rising oil and food prices,” Finance Secretary Margarito Teves told reporters.

“The government’s improved revenue performance in the first four months would help ensure that the government could fund higher levels of spending in the coming months,” he said.

Rocketing inflation and inconsistent growth in the United States, a top export market, has brought the Philippine economy back down to earth after it roared to a 7.3-percent expansion last year, its best performance in over three decades.

The government also shelved this year’s goal of a balanced budget, once the centerpiece of President Gloria Macapagal-Arroyo’s economic plan, and said it expected it to be around $1.7 billion in the red as it hikes spending to support growth.

The government now aims to balance its books in 2010.–Reuters, Thomson Financial