4th-quarter growth spurt surprises analysts

THE economy unexpectedly accelerated last quarter as investment and consumption rebounded, spurring expansion in 2010 to the fastest pace since the Marcos era.

The gross domestic product increased 7.1 percent in the quarter to December from a year earlier after a revised 6.3-percent expansion in the third quarter, the National Statistical Coordination Board said Monday.

That was more than the 6-percent median forecast of 13 economists surveyed by Bloomberg News.

As a result, the Philippines’ $161-billion economy grew 7.3 percent in 2010, the biggest gain since 1976, when the dictator Ferdinand Marcos was President.

“We are happy to note that the 2010 economic performance bolsters confidence that the economy is on a path of strong recovery,” Socio-economic Planning Secretary Cayetano Paderanga Jr. said.

Last year’s expansion contrasted with the 1.1-percent growth in 2009 as the country struggled amid the global financial crisis.

Prakriti Sofat of Barclays Capital in Singapore said last year’s acceleration was driven mainly by household spending and investment, which contributed 5.7 and 2.2 percentage points, respectively, to overall growth.

“We continue to expect GDP to expand by 5 percent in 2011,” Sofat said.

“We believe the risks are evenly balanced—downside risks from higher food and oil prices, and upside risks from stronger-than-expected electronics exports.”

President Benigno Aquino III, whose mother Corazon’s People Power movement helped oust Marcos in 1986, is increasing government spending to a record this year to expand the economy by as much as 8 percent annually starting in 2011.

The Philippines is faring better than its neighbors from South Korea to Malaysia, where growth has eased amid a moderating Asian rebound.

“This is an extension of the optimism that has followed the new government,” said Radhika Rao, an economist at Forecast Pte in Singapore.

“The central bank has managed to maintain benign inflation, and that has contributed to better spending trends and positive consumption. Remittances haven’t taken a hit and these things contribute to strong domestic demand.”

The peso climbed to the highest in more than two years in November. The currency has fallen since then after the central bank eased the rules on foreign-exchange outflows and capped dollar supply in the market by allowing currency swaps to mature, joining regional counterparts in seeking to slow excessive currency gains.

The peso dropped Monday, snapping four days of gains, as political turmoil in Egypt spurred investors to seek the relative safety of the dollar. Benchmark five-year bond yields surged the most in seven days.

Mr. Aquino, who took office in June, is asking investors to help build more than P700 billion worth of roads, schools and bridges in a nation where the World Bank estimates one out of four people live on less than $1.25 a day.

Still, the growth in Asian economies is cooling after the region led a global recovery last year, and as sovereign credit woes in Europe and unemployment exceeding 9 percent in the US cap sales of the region’s goods, such as Philippine-made Calvin Klein Inc. underwear.

“Unless the government can carry out a more aggressive stimulus program and encourage the private sector to invest, it will be a big challenge to replicate the performance last year,” Emilio Neri, an economist at Bank of the Philippine Islands, said before the report.

Asia’s policy makers are balancing the need to fight inflation against supporting growth, with South Korea and India raising interest rates this month while Indonesia and the Philippines have held rates steady for more than a year.

Mr. Aquino’s pledge to create jobs and cut poverty may be hampered as a rising peso cuts the value of remittances and damps demand for Ayala Land Inc. homes and Jollibee Foods Corp. chicken meals.

A stronger currency also makes Philippine exports more expensive. Shipments abroad make up about 30 percent of the Philippine economy, but the growth in overseas sales eased to a 12-month low in November.

Mr. Aquino said last week he would give central bank Governor Amando Tetangco a new six-year mandate when his term ended in July, saying he had “confidence” in the governor.

Tetangco has kept inflation below 5 percent in the past 21 months while holding the benchmark rate at a record low since July 2009. Policy makers next meet on Feb. 10 to decide on borrowing costs. –Elaine R. Alanguilan and Bloomberg