MANILA, Philippines — The economy enjoyed its highest annual growth in 17 years in the first quarter, thanks to healthy consumption and an expansion in back-office services.
First-quarter gross domestic product grew 6.9 percent on an annual basis, way above expectations. It expanded a seasonally adjusted 2.5 percent from the previous quarter, the highest rate in 11 quarters, the government said on Thursday.
“The Philippines is on a roll,” President Gloria Macapagal Arroyo told reporters in Canberra, where she is on a state visit.
“This is the fastest pace in almost two decades — 9.1 percent growth in services, 5.3 percent in industry, 4.2 percent in agriculture.”
Government officials said the 2007 target of 6.1 to 6.7 percent growth was well within reach and could be revised up, with the country now closer to hitting a hitherto elusive 7 percent.
Economists say the Philippines needs to grow about seven to eight percent annually to cut poverty substantially.
Economists had forecast an annual growth rate in the first quarter of 5.8 percent and quarterly growth of at most 2.2 percent.
“It’s a stunner,” said Bill Belchere, an economist at Macquarie Bank. “The good news is imports picking up in March, which signals that the exports sector is going to continue to be strong in the second quarter.
“You have business expectations and improving confidence there; you’re going to have a barn burner in the first half of the year.”
The Philippines’ main export is electronics, and it imports almost all the raw material used in the sector.
Annual GDP growth in the fourth quarter of 2006 was revised up to 5.5 percent from 4.8 percent and full-year growth in 2006 was also revised up to 5.5 percent from 5.4 percent after the government accounted for an expanding business outsourcing sector.
In Asia, only Vietnam with 7.7 percent and China with a mammoth 11.1 percent have announced higher annual growth for the first quarter.
Central bank policy makers are meeting to discuss monetary policy on Thursday but no change in interest rates is expected, despite the acceleration in growth.
Strong growth should fuel more investor interest in the Philippines, where portfolio and direct investment inflows have already boosted the stock market and the peso.
“We have sustained the growth for some time, despite the low investment-to-GDP ratio,” Romulo Neri, economic planning secretary told reporters.
“We’d like it to improve, of course, and we’re trying to pump prime through infrastructure spending. Hopefully, the private sector will follow through with their capital spending.”
The government has said it expects work on roads and bridges to accelerate in the coming months after the lifting of a 45-day ban on spending for new capital projects ahead of elections.
Economists said robust consumer spending, a moderate recovery in farming output and sustained export growth all helped the economy pick up from the fourth quarter, when typhoons battered crops and infrastructure.
About a tenth of the country’s population work abroad and the money they send home underpins consumption, which accounts for some 70 percent of GDP.
The remittances, which last year hit a record $12.8 billion, also helped boost first-quarter gross national product, which expanded 6.6 percent from a year earlier.
Analysts expect exports, which grew at a solid annual rate of 13 percent in the first quarter, to lose momentum later in the year because of the strong peso and a slowdown in the Philippines’ main export market, the United States.
But other factors should boost GDP.
“We believe that, with ongoing strength of remittances and the desire by the government to spend more on infrastructure projects, GDP growth will remain relatively robust in the second and third quarter,” said Frederic Neumann, an economist at HSBC.
Arroyo congratulated her economic managers and Filipinos working abroad.
“As head of the NEDA Board, the highest economic policy-making body, I will promote policies to sustain the growth surge. These include maintaining macroeconomic stability, improving the investment climate, sustaining agricultural modernization, and achieving peace and order,” Arroyo said.
She said the government will adhere to the spending program set by the Development Budget Coordinating Committee and will continue to work with Congress to pass important economic bills.
“There is an urgent need to ensure that these gains will impact on the lives of the common Filipino, adding that the government will pursue programs including:
– Realigning the national budget to spend more on social services
– Improving the infrastructure network;
– Eliminating regulatory capture in the bureaucracy;
– Boosting and diversifying exports and expanding their markets;
– Raising agricultural productivity;
– Strengthening micro, small and medium-sized enterprises;
– Supporting mass housing;
– Protecting the environment, and
– Eradicating terrorism.
Even with the economic growth, Arroyo said a lot still needed to be done.
“Let us therefore be closely united, looking beyond our differences, and work together in the fight against poverty,” she added. – with Lira Dalangin-Fernandez, INQUIRER.net