Friday, 28 August 2009

Philippine GDP Q2 growth tops expectations

Recession avoided following surprise second-quarter result
From reports by MPTJ and ADBR, with inputs from Reuters
BusinessWorld
http://www.bworldonline.com/BW082809/content.php?id=001

BETTER-THAN-EXPECTED second-quarter growth has allowed the Philippines to avoid a recession and diminished concerns that this year’s down-scaled target would be missed.

Seasonally adjusted, gross domestic product (GDP) growth for the April to June period was 2.4%, the highest in over two years and a reversal of the revised -2.1% contraction in the first quarter.

On an annual basis, second-quarter GDP was up 1.5%, exceeding the -0.1% to 0.9% range forecast by the National Economic and Development Authority (NEDA) and narrowly topping the 1.45% average outlook of six analysts polled by BusinessWorld.

January to March growth from a year earlier was just 0.6%, according revised government data. The original announcement of 0.4% had prompted the government to trim this year’s forecast to 0.8-1.8% from 3.1-4.1% previously.

Economic managers said they were confident that full-year growth would be in the upper end of the forecast, and also raised the possibility that official targets could be adjusted.

"The DBCC (Development Budget Coordination Committee) will need to discuss that," Finance Undersecretary Gil S. Beltran said in a text message.

Officials said the second half would be stronger given expected spending for the Christmas holidays and next year’s national elections.

The DBCC, which consists of the Budget and Finance departments, NEDA and the Bangko Sentral ng Pilipinas, has cut the growth forecast four times from the original 6.1-7.1% set last year.

National Statistical Coordination Board (NSCB) Secretary-General Romulo A. Virola, in announcing the second-quarter result, said "The economy’s growth was supported by services and agriculture, [but] the industry sector was still in contraction mainly due to manufacturing."

The service sector grew by 3.1% from last year, while the agriculture, fishery and forestry sector also grew, albeit at a smaller rate, by 0.33%.

The industry sector, meanwhile, contracted for the second straight quarter by 0.33% as a 7.2% year-on-year decline in manufacturing "could not be offset by [gains in] other sub-sectors" such as a 21.4% increase in mining and quarrying and a 16.9% hike in construction, Mr. Virola said.

The NEDA, for its part, attributed the second quarter result as due to effective government intervention.

"Government and private sector hiring programs, flexible working arrangements, and the front-loading of infrastructure projects under the Economic Resiliency Plan, all helped to cushion the economy’s growth and employment from the global recession," acting NEDA Director-General Augusto B. Santos said in the same briefing yesterday.

Government spending climbed by 9.1% in the second quarter from a year earlier, twice as fast as the 4.5% expansion in the first three months.

Private spending grew 2.2% in April to June from a year earlier, higher than the 1.3% gain in the first quarter. Consumption fuels about three-fourths of the economy.

NEDA policy and planning director Dennis M. Arroyo claimed "an easing of fear" among overseas Filipino worker families as remittances grew by 3.1% in the second quarter and reached a record high of $1.5 billion in June, defying central bank predictions of flat growth for the year.

Asked to comment, University of Asia and the Pacific economist Peter Lee U said the government’s positive expectations were "doable."

But he said hitting the higher end of the full-year target hinged heavily on the global economic recovery attaining "surer footing", as well as more pronounced impacts from pump-priming efforts.

But University of the Philippines economist Benjamin E. Diokno disagreed, saying that for the first semester consumption had actually declined.

"[Consumption] dropped sharply during the first half of the year. Consumers are spending less because of their lower income and rising uncertainty about job opportunities," the former Budget secretary said.

He also rejected the assessment that spending ahead of the 2010 elections would spur the economy. "Election spending won’t matter much in an P8-trillion economy. Moreover, it has limited multiplier effect."

The Bangko Sentral ng Pilipinas’ (BSP), meanwhile, said the data supported its decision last week to end an eight-month easing cycle, central bank Deputy Governor Diwa C. Guinigundo told Reuters by text message.

"This clearly shows stronger signs of economic recovery," he said. "The recent decision to pause was correct, from which perspective, a possible shift in monetary policy may be decided."

The BSP has kept its rate at a record low of 4.0% to join Asian peers in assessing the impact of accommodative policies. Rates have been cut by two percentage points since December 2008.

Analysts said the government would likely sustain spending and the BSP could keep rates steady for the rest of the year.

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