Economy Growth again Suprises !

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Q2’s 7.9% tops forecast; Q1 result adjusted to a higher 7.8%

THE ECONOMY GREW by a surprising 7.9% in the second quarter, hitting a three-year high and raising expectations that full-year growth could exceed targets.

The April to June number was higher than the government’s 5.9-6.9% forecast for the period. First-quarter growth was also revised to a higher 7.8% from the 7.3% reported last May.

The latest numbers brought growth to 7.9% for the first half, the strongest performance on a semestral basis since 1988 and above the government’s full-year estimate of 5-6% — raised from 2.6-2.6% after the January to March result was released.

“Given the stronger-than-expected performance of the industry and service sectors and the robust investment growth in the first two quarters, it is likely that full year GDP (gross domestic product) growth in 2010 will be leaning towards the upper end of the 5-6% GDP target, perhaps even higher,” Socioeconomic Planning Secretary Cayetano W. Paderanga, Jr. yesterday told a briefing.

The Bangko Sentral ng Pilipinas, which kept policy rates at record lows at a rate-setting meeting yesterday, said the latest GDP results warranted a review of the 2010 growth target.

“The GDP figures released were higher than expected, and put us at a position where full-year GDP could fall above this year’s GDP growth target,” central bank Governor Amando M. Tetangco, Jr. said in a text message to reporters.

“We will update our forecasts to incorporate this new information and consider its impact on the forecast inflation path over the policy horizon,” he added.

Investor confidence following a successful presidential election, along with the recovery of the industry sector and trade from the global downturn, were said to have been behind the growth

Industry expanded by 15.8% in the second quarter, reversing last year’s 0.6% slump. Manufacturing, driven by electronics exports, grew by 12.4%.

Services rose by 6.4% — faster than last year’s 2.7% — following a real estate sector rebound.

Agriculture output, meanwhile, contracted for the third quarter in a row, by 3% due to an El Niño-induced dry spell.

Seasonally adjusted, growth slowed to 1.3% in the second quarter from 3.8% a quarter earlier.

“It only shows that the pace of growth momentum is already slowing down but I still believe that we could hit the government target of 5-6%,” ATR Kim Eng Securities, Inc. economist Luz L. Lorenzo said.

University of the Philippines economist Benjamin E. Diokno, who expects growth to ease to “slightly less” than 5% this year, said: “The current GDP growth trajectory is not sustainable.”

“Election spending, front-loading of public infrastructure, low base effects (especially for export manufactures), above normal government spending will all be absent in the second half of the year,” he said.

Barclays Capital, in a research note, said that “in order to achieve the top-end of the range, we need to see an average growth of only 4.5% in H2 2010.”

Rising investment and robust consumer spending could drive up growth in the second half to 6%, Barclays said, adding that it had raised its full-year forecast to 7% from 6%.

National Statistical Coordination Board Secretary-General Romulo A. Virola said the last time the country experienced two consecutive quarters of above 7% GDP growth was in the first and second quarters of 2004, also preceding a presidential election. GDP growth then was at 7.2% and 7.1%, respectively.

UP economist Solita C. Monsod said sustaining growth in the high single digits would be a major challenge for the Aquino administration.

“The surprising growth in the two consecutive quarters in all fairness is still attributed to the Arroyo administration. I can only hope that President [Benigno C.] Aquino [III] will be able to sustain it,” she said.

“Sustaining an over 7% growth until his term in 2016 will be hard unless President Aquino focuses on infrastructure and removes red tape and corruption that constrained investment growth locally,” Ms. Monsod added.

Mr. Paderanga agreed that “to sustain growth we really need to introduce changes to our investors and businessmen like initiatives on easing doing business in the country.”