MANILA, Philippines (3RD UPDATE) - The Philippine economy grew by 6.4% in the first quarter from an upwardly revised growth of 4.9% last year, the government announced on Thursday.
"This growth is well above the market’s consensus forecast of 4.8 percent. Also, the Philippines posted the highest growth among ASEAN and other neighboring countries except China," Socioeconomic Planning Secretary Arsenio Balisacan said.
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The growth was attributed to to the government's strong infrastructure spending and its conditional cash transfer (CCT) program.
Compared to the fourth quarter of 2011, the Philippine economy grew by 2.5% in the first quarter, slightly below market forecasts, putting pressure on the government to boost spending and raising the case for the central bank to resume cutting rates later this year.
Balisacan expressed confidence the government can meet its full-year GDP target, or even exceed it.
"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," Balisacan said.
"At the same time, the government will not let up in its efforts to accelerate the growth of the economy. For example, there is still considerable room for faster acceleration in government spending. Also the government will remain vigilant to risk to growth, including those posed by the euro area woes and uncertainties in the world oil prices," he added.
The Philippines is targeting faster growth of 5 to 6 percent this year against last year's 3.7 percent, fuelled by higher government spending, a rebound in exports, and strong domestic consumption.
Balisacan said the first quarter performance serves as "a springboard" for the next 3 quarters.
"The latest improvement on several governance and competitiveness indicators, including Moody’s recent change of outlook on the country’s Ba2 rating to positive from stable, indicate that our macroeconomic targets for this year are achievable, given the synergy between the public and private sectors," he said.
Economists were surprised by the strong 6.4% year-on-year growth, but there are questions as to whether this can be sustained.
Eugene Leow, economist at DBS Bank in Singapore, said the 6.4% growth was "surprisingly strong," on the back of the government's fiscal spending
"We do not think the growth momentum can be sustained because of the troubles in Europe. April data from the region has also softened. The 6.4 percent year-on-year growth may raise fears of demand-push pressures but inflation should be comfortably within the central bank's forecast range. There is scope for easing if necessary but I don't think the central bank is ready to push the trigger just yet. Our forecast is for the rate to stay unchanged this year. The government also has room to introduce a fiscal stimulus if needed," Leow said.
Jun Neri, economist at the Bank of the Philippine Islands, said the strong pace of economic growth warrants an upgrade of the Philippines from the major credit ratings agencies.
"Moody's and S&P, in particular, will take note of stronger growth performance, as it will make the relative size of our debt much smaller than overall output. 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. - With Reuters