Can PH economy sustain its growth momentum?

Posted at 05/31/12 3:01 PM

MANILA, Philippines - The Philippines posted surprisingly strong first quarter growth, but some economists are questioning whether the growth momentum can be sustained for the rest of the year.

The Philippines saw its first quarter gross domestic product (GDP) climb 6.4% from a year earlier, the fastest quarterly pace in 2 years, on the back of strong government spending, robust domestic demand and rebound in exports.

Socioeconomic Planning Secretary Arsenio Balisacan expects the economy to exceed the full-year target.

"Given the preliminary first quarter 2012 estimate, we expect that the full year 2012 real GDP growth rate projection of 5 to 6% is well within reach, or may even exceed it... The first quarter performance serves as a springboard for the next three quarters," he said.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said the higher than forecast outcome made the government's 2012 target "more manageable," adding that there was less need for monetary authorities to support growth. 

"We are, of course, hopeful that this trend would continue, as the national government accelerates spending and private consumption remains robust," Tetangco said in a statement. 

"Nevertheless we are mindful of the risks in the external environment, particularly the weakness in the euro zone, tentative growth in the United States and slowdown in China," he said. 

Sustainability in doubt

However, some economists do not think the Philippines can sustain its growth momentum for the rest of the year, with uncertainties in the euro zone and the slowdown of the Chinese economy.

University of the Philippines School of Economics professor Benjamin Diokno raised some questions about the first quarter GDP numbers.

"If the numbers are true (adjusted 4.9% last year) 6.2 in the first quarter of 2012, how come many Filipinos are jobless, poorer, and hungrier? Is the 6.2% GDP growth sustainable in the light of the looming global recession," he asked.

HSBC economist Trinh Nguyen attributed the rosy first quarter GDP growth to increased government spending and better-than-expected exports. She expects the first quarter to be the "best quarter of the year."

"Growth, while continuing be robust, will likely slow in the next quarters for the following reasons: a) government spending will likely slow, as already evidenced in the April number; b) exports, although expected to record positive growth, will normalize and expand at a more modest pace due to the worsening of the euro zone crisis, the slowing down of China as well as the gradual decrease consumer confidence in the U.S.; and c) remittances will likely decelerate due to tougher host country conditions, especially in the euro zone," she said.

Bank of the Philippine Islands economist Jun Neri said the question is whether the Philippines can sustain its economic growth.

"Of course the question is the sustainability. It's a big question mark, more so that headwinds particularly from peripheral Europe are anticipated to have an impact on the remaining quarters of the year, which again should compel our policymakers to sustain if not to continue to step up on expansionary policies," Neri said.

"Rocking in the Philippines"

On the other hand, PJ Garcia, senior vice-president of BPI Asset Management, said the better-than-expected GDP numbers for the first quarter is a positive signal for investors to enter the Philippines.

But for the country to sustain growth momentum, Garcia said the government should introduce policy reforms in investments and fast-track public-private partnership projects.

"This is definitely a buy signal for foreign investors and local investors alike... The Philippines is one of the few economies globally, not only in Asia, with very strong macro-economic indicators with growth at around 6%, inflation at around 3%, you have the peso still stronger vs. the dollar by 2-3% and all-time low interest rates for government bond yields," he said.

"We are in a sweet spot. We are definitely rocking in the Philippines," Garcia added. - With Reuters, ANC