Economy seen growing 7% in Q1

MANILA, Philippines – The Philippine economy is expected to accelerate to a growth of seven percent in the second quarter of the year and hit a full-year growth of six percent to seven percent, economist Victor Abola of the University of Asia & the Pacific said in a midyear economic briefing yesterday.

Drivers will be the recovery of agriculture and industry sectors and the steady growth of services but threats to this growth remain, he said.

Abola expects the industry sector to grow by six to seven percent and the services sector by seven to eight percent this year.

External threats to growth include the debt crisis in the Eurozone and global oil prices, he said.

Internally, Abola said that the government has to spend more to reduce debt and spend more on infrastructure. “Internally, we have the debt overhang and poor infrastructure.”

The overvalued peso, lower employment, a looming property bubble and a power shortage in Mindanao also threaten growth, he said.

On the power shortage in Mindanao, Abola said this could severely affect the economy if not addressed soon.

He expects the peso to remain strong at P42 to P44 against the dollar while inflation is expected to hit anywhere from 3.2 percent to 3.4 percent this year, within the central bank’s forecast of three to five percent for 2012.

Gross international reserves are expected to hit $84 billion, above the Bangko Sentral ng Pilipinas’ GIR projection of $77.5 billion to $78 billion, revised from an earlier estimate of $79 billion.

Despite the country’s improving macroeconomic fundamentals, Abola said the debt problem in the country remains a major macro issue.

The “debt overhang” he said, has resulted in “extremely low infrastructure spending” for the Philippines over the past 29 years.

He said infrastructure spending has remained below an annual average of three percent as a percentage of gross domestic product (GDP) from 1980 to 2009.

This compares to Singapore and Thailand, which have recorded infrastructure spending at an average of four percent of GDP from 1980 to 2009.

Nonetheless, Abola said the goal to bring infrastructure spending to five percent by 2015 from two percent in 2010 is achievable.

The economy grew by 6.4 percent in the first quarter of the year, from 4.9 percent recorded a year ago, boosting the country’s chance to hit the government’s five to six percent economic growth forecast for the year. –Iris C. Gonzales (The Philippine Star)