Growth tops expectations

THE PHILIPPINE ECONOMY grew by 6.4% in the first quarter — way above market expectations as well as the official forecast — amid a “revitalized” service sector, higher exports and a jump in state spending.

Growth in real gross domestic product (GDP) was the fastest since the 7.3% seen in the third quarter of 2010. The January-March result, which was above the government’s 5-6% outlook, was significantly faster than the revised 4.9% recorded in the first quarter of 2011.

A BusinessWorld poll of analysts had a median forecast of 4.3%.

Real GDP, or the value of all finished goods and services within the country adjusted for inflation, stood at P1.49 trillion for the quarter from P1.4 trillion the same period last year. At current prices, GDP grew by 7.7% to P2.42 trillion, data released by the National Statistical Coordination Board (NSCB) showed.

Government officials were quick to address concerns from surprised analysts that the growth figure might not be sustained for the rest of the year. The government has forecast full-year GDP growth of 5-6% for 2012.

The domestic economy benefited from a regime of benign inflation and an uptick in the services sector particularly from trade and other services, NSCB Secretary-General Romulo A. Virola said in a press briefing.

Headline inflation averaged 3.1% for the January to March period, within the Bangko Sentral ng Pilipinas (BSP) target of 3-5% for the year.

“Growth also got a big boost from manufacturing which has recovered some grounds … on the demand side, growth mainly came from net exports and robust spending,” Mr. Virola said.

The services sector registered the highest growth since 2004 at 8.5% during the period, with trade and other services gaining 8.9% and 10.5%, respectively.

Industry gained by a modest 4.9%, compared with last year’s 7.3%, as manufacturing recorded a 5.7% increase.

Mining and quarrying, however, contracted by 11.0%, a turnaround from the 32.2% rise in the first quarter of 2011.

Agriculture output, meanwhile, went up by just 1%, significantly slower than last year’s 4.4%.

On the expenditure side, government spending jumped by 24% during the period, reversing last year’s 15.8% slump, while service exports and merchandise exports grew by 11.1% and 7.1%, respectively.

‘BROAD-BASED’

Arsenio M. Balisacan, acting Socioeconomic Planning Secretary, said first quarter economic growth was “broad-based.”

“Growth for the quarter was supported by accelerated government spending, low prices which supported household consumption, better-than-anticipated exports performance, continued credit expansion, continued robustness of remittances, expansion in the tourism sector, increased business and consumer confidence, and an overall buoyant domestic economic outlook,” Mr. Balisacan said.

“Also, the Philippines posted highest growth among ASEAN (Association of Southeast Asian Nations) and other neighboring countries except China, growing faster than Indonesia (6.3%), Vietnam (4.0%), Singapore (1.6%) and Thailand (0.3%).”

GROWTH SEEN SLOWING

Economists were surprised with the growth number, and said the pace could slow down in the next quarter as external threats continued to persist.

Eugene Leow, economist at DBS Bank, said: “Headline growth was surprisingly robust on the back of a surge in services output, while on the production side, the surge in export and industrial production already point to a strong start to the year.”

“However, the outlook has become decidedly cloudier due to the worsening of the euro zone crisis and risks of a hard landing in China,” Mr. Leow said, adding that “electronics exports had been buoyed by restocking and it is far from clear that final demand can be sustained in the coming months.”

Hong Kong and Shanghai Banking Corp. regional economist Trinh D. Nguyen was of the same view, saying: “Looking ahead, growth, while continuing to be robust, will likely slow in the next quarters as government spending will likely slow as evidenced in the April number.”

“Exports, although expected to record positive growth, will normalize and expand at a more modest pace due to the worsening of the euro zone crisis, the slowing down of China as well as the gradual decrease consumer confidence in the US,” the HSBC economist said.

She added: “We expect the economy to expand by 4.4% in 2012. With inflationary pressures increasing and growth less of a concern, the BSP has room to hold rates steady to monitor price conditions as well as external demand.”

The central bank has kept its overnight borrowing and lending rates steady at 4% and 6%, respectively.

CENTRAL BANK WATCHFUL

BSP Governor Amando M. Tetangco, Jr., in an e-mail to reporters, said monetary authorities were ready to move against any inflationary effects.

“[W]e are ready to make adjustments as needed to ensure a non-inflationary growth environment,” Mr. Tetangco said as he also noted that the first quarter result “makes the official target of 5%-6% GDP growth more manageable.”

“We are, of course, hopeful that this trend would continue, as the NG (national government) accelerates spending and private consumption remains robust,” he added.

“Nevertheless, we are mindful of the risks in the external environment, particularly the weakness in the euro zone, tentative growth in the US and slowdown in China.

“We will take all of these into consideration and refine our forecasts for our next policy meeting.”

The policy-making Monetary Board will next meet on June 14.

“At the moment, our policy settings remain appropriate especially as our forecasts continue to show full-year average inflation to be closer to the lower end of the target range,” Mr. Tetangco noted.

DOUBTS RAISED

Benjamin E. Diokno, economist at University of the Philippines, questioned the results.

“How come many Filipinos are jobless, poorer and hungrier? Is the 6.4% GDP growth sustainable in the light of the looming global recession?” he asked yesterday.

“Exports growth exceeded imports growth. That’s unusual considering the tepid growth of exports. Certainly, the positive net exports are not sustainable and perhaps not even consistent with strong growth in the future,” Mr. Diokno said, adding that global market is “shrinking and volatile.”

“The growth of the Philippine economy should be based on domestic demand.”

Jeff Ng, economist at Standard Chartered Bank in Hong Kong, said export growth may face “increasing headwinds.”

“As the first quarter typically contributes the least to full-year growth as the weakest quarter, we will need to examine second-quarter numbers in order to determine if the 5-6% full year GDP growth is attainable,” Mr. Ng said.

Cid L. Terosa, senior economist at the University of Asia and the Pacific, was optimistic. “Momentum will be maintained because of greater government and household spending and greater investor confidence, which are the reasons why the government’s full year target would be surpassed,” he said, adding, “exports could add more to the growth spurt.”

GOV’T UBPEAT

The government, for its part, said the full-year target could even be surpassed.

“We already completed April and May and I have not seen any major shocks, so far. I think growth will be sustained as the second quarter outlook will be quite good,” Mr. Balisacan said.

Regarding exports, National Economic and Development Authority (NEDA) assistant director-general Ruperto P. Majuca said that despite problems in the euro zone, exports are expected to grow faster in the second quarter and continue to improve.

“We are anticipating exports growth for the year to … attain the 10% growth forecast,” he said.

The Budget department, which had received flak for the slow pace of spending, also said growth would be sustained. Public spending has been focused in “foundational” areas such as basic education, health care, public housing, rural electricity and farm productivity, Budget Secretary Florencio B. Abad said in a telephone interview.

“The government will release the final tranche of [pay hikes under the] Salary Standardization Law for government employees, coupled with increased spending in irrigation and the coconut and fisheries sector, which have with the highest poverty rates,” Mr. Abad said.

REFORMS CITED

The disaggregation of lump-sum funds in the national budget allowed government agencies to bid out infrastructure projects as early as January and take advantage of the dry season, he said. The speedy release of allotments for projects such as the rural health facilities, public school buildings and the conditional cash transfer program also jumpstarted government consumption.

While reforms caused a temporary slump last year, they have now proven to be critical for growth, Mr. Abad stressed.

“It takes a while to restore credibility to the government. That’s why, for a while, there was a necessary slowdown because there was a lot of review. We had to replace people and reinstitute processes,” he said. — with Diane Claire J. Jiao and Kathleen A. Martin, JUDY DANNIBELLE T. CHUA CO, Researcher, Businessworld