Q2 growth hits
20-year high of 7.5%

BY REGINA BENGCO

THE economy grew at a 20-year high of 7.5 percent in the second quarter, boosted by pump priming and booming private consumption.

Share prices jumped 3.45 percent in reaction to the growth report, one of the highest in the region, while bond spreads narrowed.

The peso tried to ride on the data but ended lower at 46.84 to the dollar, down from Wednesday’s close of 46.83. It opened high at 46.60 rose to 46.57 but retreated near the close of trade.

President Arroyo said she preferred to stick to the original gross domestic product (GDP) growth target of 6.1-6.7 percent for 2007 after 5.5 percent the previous year.

She said the economy’s growth during the second quarter is not a fluke and that it is sustainable.

"We are maintaining the full-year target and we are not expecting any slowdown in the third, much less in the fourth quarter," acting Planning Secretary Augusto Santos said, adding that "a 7 percent growth for the year is not really that impossible."

During the second quarter, the gross national product rose by 8.3 percent, on the strength of growth in net factor income from abroad, mostly in the form of overseas remittances, of 16.6 percent.

The second quarter GDP growth beat market forecast of 6.5 percent and drove the first half growth to 7.3 percent.

Economists warned that turmoil in the financial markets and the drought will dampen growth for the rest of the year.

Samie Lim, Philippine Chamber of Commerce and Industry president, said the high growth will boost investor confidence.

Lim, who in January predicted a 7 percent growth for this year, said he expects the momentum to be carried throughout the year.

"The third quarter would be good after six months of pump priming. When people see confidence for that long, the tendency is to carry it on," Lim said.

"The government spent all its money for pump priming in the first quarter just before the elections. Pump priming in the second quarter was boosted by money of election candidates," Lim added.

Analysts said it would be difficult to sustain the back-to-back 7-percent-plus annual growth seen in the first two quarters.

"The global credit market squeeze and softness seen in the United States could culminate in slower global demand. So, from the investment point of view, things will slow down," said Vishnu Varathan, an economist at Forecast Pte. Ltd.

"So will exports, as demand for items like electronics takes a hit. This, of course, will weigh on the domestic economy, which is to some extent still reliant on exports."

The Philippines’ second-quarter annual GDP performance outshone neighbors such as Malaysia, Hong Kong and Indonesia but trailed Singapore’s 8.6 percent and China’s 11.9 percent annual expansion.

It was the highest annual growth rate since 7.7 percent in the third quarter of 1986, the year Ferdinand Marcos was overthrown.

Government spending accelerated 13.5 percent in the second quarter from 9.9 percent in the previous three months and from 3.3 percent last year as Arroyo, after years of belt-tightening, released money for infrastructure projects and services.

State funds were also doled out ahead of congressional elections in May, but economists said the economy’s growth drivers, including sustained consumer spending, were solid.

"The fundamentals underpinning growth are the best we have seen since 1996," said Nick Bibby at Barclays Capital in Singapore.

"I think we will probably see the headline rate coming down a little bit. (But) we will see solid growth. Domestic demand will increasingly become the driver of growth."

At a Palace press conference on the second quarter economic data, Arroyo’s temper again showed its volatility during the question and answer portion, when media persons asked about the initial reaction of disbelief from some sectors, about how much election spending contributed to the growth and about how long before the trickledown effect is felt.

UP professor Benjamin Diokno, a former budget secretary, has described the growth figures as "incredible and questionable."

When told that a number of persons doubted the growth rates, Arroyo asked: "Are you saying that our NSCB (National Statistical Coordination Board) people are liars?"

She said the growth can be seen in the ongoing infrastructure projects. "Totoo ba yun? You can see it and that’s driving the growth, the 36 percent increase," she added.

Santos cited the "firewall theory" of former presidential economic adviser and now Albay Gov. Jose Salceda to explain the economy’s continued good performance despite worries in the world’s financial capitals over the subprime housing credit crunch in the United States.

He said election spending "definitely contributed" to the second quarter growth since it boosted consumption. He said, however, public construction was the prime driver.

Arroyo said the public construction was not related to election spending because there was an election ban on new projects. The President said growth has trickled down to the poor, citing the fact that one-fourth of the population already has health insurance, the price of medicine has gone down, more low-cost housing has been built, and unemployment has declined.

She also said the Social Weather Stations survey showed that self-rated poverty (SRP) has gone down to 47 percent – the lowest in history.

The SWS survey explained that SRP went down because Filipinos have lowered their living standards, bringing down the monthly poverty threshold from P12,000 to P9,000 in Metro Manila.

Asked how the growth would be sustained in the next three years, Arroyo said: "Ours is the only administration that has not experienced any negative growth in any quarter. And it has been a six-year administration. So it has been sustained. In fact, the regular boom and bust cycle is three years so we should have gone through two boom and bust cycles by now. But we never did."