Saturday, 17 July 2010

Close to 7% full-year growth possible–economist

Written by Cai U. Ordinario
Business Mirror

THE global economic recovery and improved business confidence riding on the new administration will all play a key role in boosting economic growth to close to 7 percent this year, according to an economist from the University of Asia and the Pacific (UA&P).

In an interview, Dr. Victor Abola, UA&P Strategic Business Economics program director, said the average growth in the first half of the year will likely hit 7.5 percent, while the second half will be a bit slower at around 6.2 percent to 6.3 percent.

Abola said second-quarter growth could post higher growth than the first quarter at around 7.5 percent. The third quarter, on the other hand, will likely post a growth of above 6 percent.

“I’ve not been able to revise completely our model but right now, the way I see it, you’ll probably average around 7.5 in the first half and most probably about 6 or 6.2 or 6.3 in the second half. So take that average, you’ll get a high 6 percent, nearer to 7 percent,” Abola said at the sidelines of the Dun & Bradstreet Business Optimism Index released on Thursday.

Abola said the second-quarter growth will likely be better than the first-quarter growth, since industry and the services sectors will likely continue the same pace of growth or
higher than the first quarter and the agriculture, fishery and forestry (AFF) sector will post milder contraction.

The first quarter’s impressive 7.3-percent gross domestic product (GDP) growth was buoyed by manufacturing’s double-digit growth of 20.7 percent.

In the January-to-March period, AFF contracted by 2.5 percent from last year’s growth of 2.1 percent; industry, 15.7 percent from last year’s contraction of 2.6 percent; and services, 6.1 percent from last year’s growth of 1.9 percent.

“What will make it faster, the growth of industry and services, is probably going to be as fast or probably a little bit faster. What will push it up is agriculture, [which] will be less negative. The indicators I am looking at—Meralco, energy indicators—you know that we have data up to April and May, they are about as strong as they were in the first quarter; very close. That means, it’s really strong. The second quarter is going to be quite strong,” Abola explained partly in Filipino.

However, a slowdown is expected at the start of the third quarter largely due to the appreciation of the peso. Abola said despite the optimism shown by businesses in the third quarter, the strong peso will likely temper growth in the second half of the year.

The World Bank said in its Philippine Quarterly Update that, because of the appreciating peso, overseas Filipino workers’ remittances would post a flat growth in peso terms despite a projected 8-percent growth in dollar terms.

Abola said that besides remittances, the strong peso would affect exports, which will mean that growth in manufacturing will not be as robust.

This was seen in the D&B Survey, which showed Philippine Economic Zone Authority firms being less optimistic of the third quarter than most firms.

“If you have a strong peso, growth cannot go faster. I don’t think it will be faster than the second quarter. Even though the figures indicate that optimism, I think it [growth in the second half] will be a bit slower,” Abola said.

Earlier, the National Economic and Development Authority (Neda) said it is confident that it is possible for the country to sustain a 7-percent growth this year.

Neda Acting Director General Augusto Santos said with the announcement of a 7.3-percent GDP growth in the first quarter, the economy would likely sustain the growth on the back of a positive outlook and seasonality.

The Neda said growth would be boosted by the continuation of the global economic rebound, and the renewed demand for electronics like computers, netbooks and smart phones. There is also an increase in demand for semiconductors.

Dennis Arroyo, former Neda National Planning and Policy Staff director, traced the renewed confidence to the change in administration, which he described as a “general feeling” after the conduct of an election.

Arroyo added that growth would also come from the end of the El Niño, growth in food manufacturing, growth in business-process outsourcing and stronger consumer confidence. The reconstruction after typhoons Ondoy and Pepeng will also continue to add to the factors that will sustain growth.

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