Global risk may hurt growth

AS economic growth in the second quarter and the first semester came close to hitting 8 percent, the National Economic and Development Authority (Neda) expressed belief on Thursday that full-year growth can still exceed the government’s targets barring any natural disasters and economic problems.

The government announced on Thursday that the Philippine economy posted a growth of 7.9 percent in the second quarter and the first semester of 2010 on the back of the robust output from the manufacturing sector.

In a statement, Neda Director General and Socioeconomic Planning Secretary Dr. Cayetano Paderanga Jr. said while the gross domestic product (GDP) growth target of 5 percent to 6 percent can still be exceeded due to the recent performance of the economy, threats still remain, including the risk of global recovery being derailed. On Thursday the odds of a “double-dip recession” in the US rose on reports of investment cutbacks and slow home sales.

The Neda chief said attaining the 5-percent to 6-percent full-year growth target of the national government might be achieved if the economy posts at least a growth of 3 percent to 5 percent in the second semester.

“We still expect the agriculture sector to remain sluggish given the possibility that a transition to La Niña will materialize in the second half of 2010. However, given the stronger-than expected performance of industry and services sectors and the robust investment growth in the first two quarters, it is likely that full-year GDP growth in 2010 will be leaning toward the upper end of the 5-percent to 6-percent GDP target, perhaps even higher than that,” Paderanga said.

“We have once again shown that a high economic growth is attainable for the Philippines and all of us must work harder to maintain, if not surpass, this high economic growth achievement of almost 8 percent for the first semester of 2010,” he added.

Paderanga said one of the more serious threats to the economy, especially in the second semester, is a double-dip recession in developed countries like the United States, euro area and Japan. These countries are the Philippines’ main export market and primary trading partners.

Recession abroad biggest threat

Former Budget secretary Dr. Benjamin Diokno agreed with Paderanga’s view. He said a double-dip recession abroad would, in fact, be the biggest threat to the Philippine economy.

“The other threats are conservative fiscal policy and La Niña. With limited revenues and bias for fiscal consolidation, government spending might slow considerably. Agriculture output recovery may be affected by a severe La Niña phenomenon. On the other hand, a mild La Niña could boost agriculture output,” Diokno said in an e-mail. The disasters of 2009, as well as the recent typhoons in the first six months of the year, caused the agriculture, fishery and forestry (AFF) sector to post a contraction of 2.9 percent.

Victor Abola, First Metro Investment Corp and University of Asia and the Pacific Capital Markets Research executive director, said he does not subscribe to the possibility of a double-dip recession in developed countries, but sees the second semester to be significantly slower.

In a phone interview, Abola said this would be due to a significant slowdown in developed countries in the second half of the year. He expects the United States economy to post a slow growth of below 2 percent in the July-to-December period this year.

“The second-semester growth will be much lower. While a double-dip [recession] is possible, this is something I do not subscribe to. I expect slower economic growth for the US, around below 2 percent but I don’t expect it to contract,” Abola said.

“The 5-percent to 6-percent growth target is easily attainable. This is why my full-year growth forecast of 6.4 percent stands,” he added.

Aquino confident

Relatedly, President Aquino said on Thursday Filipinos would begin to feel the benefits of an improved economy by the middle of next year.

The President made the statement at the Rizal Technological University quadrangle in Mandaluyong City, where he led the groundbreaking ceremony for the proposed Teacher Education and Law Center Building.

“The economy is improving, and I think that we will feel this by the middle of next year, by which time we may have an easier time sourcing funds,” he said.

Mr. Aquino based his confidence on his recent meeting with officials of Deutsche Bank, and on the prospective outcome—in terms of investment yield—of his working visit to the United States in September.

He said the Deutsche Bank officials informed him that the bank would “triple” their exposure in the Philippines, which they cited as proof of their confidence that the Philippines is on the road to progress.

”I am very confident. Toward the end of September, we will be going to America, and from America, I believe that we will be able to bring home a sizable gift to the people in terms of more jobs,” the President said.

Record-high economic growth

IN a press conference, National Statistical Coordination Board (NSCB) secretary-general Dr. Romulo Virola also said the last time the country experienced two consecutive quarters of above 7-percent GDP growth also preceded a presidential election.

In the first and second quarters of 2004, the economy posted a growth of 7.2 percent and 7.1 percent, respectively.

With the upward revision of first-quarter GDP to 7.8 percent from the initial estimate of 7.3 percent, first-semester growth of 7.9 percent became the highest semestral growth for the Philippine economy in 22 years, he added.

Virola said the highest semestral growth the economy posted was in the second half of 1988, when GDP reached 9.3 percent.

On the production side, the main growth driver was industry, growing by 15.8 percent in the second quarter and 15.9 in the first semester, the highest ever semestral growth.

Industry’s growth was fueled by the double-digit growth of mining and quarrying, which posted a second-quarter growth of 36.3 percent and semestral growth of 23 percent; construction, 22.6 percent and 15.7 percent; and manufacturing, 12.4 percent and 16.2 percent.

The services sector grew by 6.4 percent in the second quarter and 6.7 percent in the first semester, driven mainly by office dwellings and the real-estate sector, which posted a record-high growth of 9.4 percent in the second quarter and 10-percent growth in the first semester.

AFF contracted by 3 percent in the second quarter. The main drag in AFF growth was sugar cane, shrinking by 60.4 percent in the second quarter and 16.5 percent in the first semester.

On the supply side, the NSCB said there was increased consumer and government spending, increased investments in construction and durable equipment, and the second consecutive quarter of immense growth in external trade contributed to the highest quarterly growth since the second quarter of 2007. The continued inflow of compensation of the country’s overseas workers sustained the net factor income from abroad, but at a much lower growth of 7.7 percent from 30.4 percent last year.

This pulled down gross national product (GNP) growth to only 7.9 percent from 4.4 percent in 2010. For the first semester, GNP grew by 8.2 percent, its highest since 8.9 percent in the second semester of 1988.

The NSCB said that as population reached an estimated 93.8 million, per-capita GDP rebounded by 5.9 percent, the highest since the second quarter of 2007, from negative 0.8 percent in the previous year, while per-capita GNP accelerated to 5.8 percent from 2.4 percent.  (With M. Gonzalez) –Cai U. Ordinario / Reporter, BUsinessmirror