BY IRMA ISIP and MAX ESTAYO

THE economy grew by 7.3 percent last year, the highest in 31 years, the National Statistics Office said yesterday.

Gross domestic product (GDP) growth for the fourth quarter was 7.4 percent, from 5.5 percent last year.

Growth was solid, coming from the services sector, officials said.

Agriculture grew by 5.1 percent from 3.8 percent in 2006; industry expanded 6.6 percent from 4.5 percent; and services went up 8.7 percent from 6.7 percent.

But the turbulence the economy is likely to face this year started having its effects felt in the fourth quarter when the growth in overseas workers remittances slowed down from 13.3 percent in 2006 to 12.6 percent last year.

Augusto Santos, National Economic and Development Authority director general, said NEDA’s assumption is that a 1 percentage reduction in US economic growth could result in 1.764 percent reduction in local growth.

Trade with the US accounts for 15 to 20 percent of total trade while 40 percent of total remittances comes from US-based Filipinos.

Romulo Violat, National Statistics Coordination Board secretary general, said the Philippines last recorded a higher growth rate of 8.8 percent in 1976.

Businessmen said the government should make growth sustainable.

Donald Dee, chairman emeritus of the Philippine Chamber of Commerce and Industry, said the country must be made more competitive and industries more productive.

Alberto Lim, executive director of the Makati Business Club, said the country might not be able to sustain its growth because of a possible recession in the United States and higher oil prices.

Lim said the government should continue spending for infrastructure.

PCCI president Samie Lim said the 7.4 percent was a surprise to everybody.

"I believe the (good business) environment is still there. Opportunities in mining, tourism and business process outsourcing are still there. There are a lot of bright spots," Lim said.

Officials said the economy grew by a seasonally adjusted 1.8 percent in the fourth quarter and maintained a 2008 growth target of 6.3 to 7 percent despite the expected slowdown in the United States.

"Evidently economic momentum is very strong. Therefore, if we see a slowdown in economic growth, it would only materialize in the second half of the year," said Frederic Neumann, an economist at HSBC.

But Vishnu Varathan, an analyst at Forecast Pte, said last year’s performance should not affect the rate policy.

"We really don’t want to be looking through the rear-view mirror in constructing monetary policy,"

"In my view, this number should not materially affect the decision today."

An 8.7 percent surge in annual output of the services sector, the highest in more than half a century, underpinned the growth, officials said.

"In an environment of benign inflation, low interest rates and a strong peso, the Philippine economy turned in its best performance in 31 years," said Virola.

"On the demand side, increased consumer spending, investments in public and private construction, government spending and exports of non-factor services largely contributed to the remarkable performance of the economy."

The actual growth data was at the upper end of the government’s most recent forecast of 6.7-7.8 percent growth in the fourth quarter from a year earlier and 6.9 to 7.3 percent average expansion last year.

Gross national product, swelled by money sent home by Filipinos working overseas, grew 6.5 percent in the fourth quarter from a year earlier and 7.8 percent in the full year, also a 31-year high.

"Given the remarkable growth in 2007, the continued weakness of the US economy and the volatile oil prices are clouds in the horizon that pose downside risks to growth in 2008. But what is important is that we have seen how the concerted efforts of all sectors of the society contributed towards ushering the country on a trajectory of accelerated growth," said Santos.