MANILA, Philippines - The Philippine economy grew much faster than expected in the first quarter, but it is unlikely to alter views the central bank will keep rates on hold for some time yet amid increasing uncertainties following Europe's debt crisis.

The National Statistical Coordination Board said on Thursday the country's GDP grew  7.3% from a year ago buoyed by global recovery, election spending and increased remittances from overseas Filipinos. The first quarter GDP exceeded the government's 2.9% to 3.9% growth projection.

Gross domestic product expanded a seasonally adjusted 3 % in January-March quarter, against market consensus of 0.8%  growth, and versus an upwardly revised 1.4% growth in the fourth quarter. The fourth quarter GDP annual growth was also revised to 2.1% from 1.8%.

"This is a pattern we have seen across Asia for the first quarter. But we are facing new headwinds such as financial headwinds from Europe," said Jun Trinidad, an economist at Citiggroup in Manila.

"The economy will likely head back to trend growth in the coming quarters and heading back to trend growth will also be challenging in this environment. While a GDP forecast upgrade is definitely forthcoming in the light of this
data, it wouldn't be a lot."
 
The central bank has said it was watching the market  turmoil caused by Europe's debt concerns and tensions on the Korean peninsula for any impact on domestic demand and prices, a factor it would weigh at its monetary policy meeting next week.

Most analysts expect the central bank to keep rates steady at a record low 4.0% at its June 3 meeting, with a hike likely in the third quarter.

But the euro zone's debt crisis could dampen global demand and push back the timing of the expected policy tightening. 

The Philippines' main economic drivers are exports of electronics and agriculture goods, and domestic demand fuelled largely by remittances from overseas Filipino workers. 

Consumption, which makes up nearly two-thirds of the economy, is expected to have been supported by a 7% annual rise in remittances from overseas Filipinos in the first quarter and record spending by the government, including on infrastructure projects, ahead of a ban on new state contracts before the May 10 national elections.

Exports, which account for about two-fifths of gross domestic product in expenditure terms, surged 43% in annual terms in the quarter as demand for electronics shipments recovered from the previous year's crisis-induced lows.

Farm output contracted 2.8% in January to March from a year earlier as dry weather parched crops, including the rice staple.

The government had set a growth target of 2.6 to 3.6% this year but said it may raise the goal after the release of first quarter data.

The Philippines was one of the few countries in the region to skip a recession in 2009, with the economy growing 1.1% for the full year.

Manila expects growth of 3.8 to 4.7% in 2011.