Philippine economic growth surges in Q2 2007

From the Financial Times this morning:

Philippine economic growth surges in Q2

By Roel Landingin in Manila

Published: August 30 2007 04:25 | Last updated: August 30 2007 06:17

The Philippine economy grew at its fastest pace in two decades in the second quarter, spurred by a surge in government outlays for the elections in May and infrastructure projects, and higher overseas remittances that boosted household spending.

Officials said gross domestic product expanded 7.5 per cent in the three months to June 30 from the same period last year. Analysts’ forecasts had ranged from 6.3 to 6.9 per cent.

The economy grew by a revised 7.1 per cent in the first quarter, bringing growth for the first half of the year to 7.3 per cent. Last year, GDP expanded by 5.5 per cent.

The stock market was up 3.4 per cent as of noon on the news, while the peso rose to 46.66 per US dollar against Wednesday’s close of 46.83.

Economic planners said the economy was poised to exceed the government’s full-year growth target of 6.1-6.7 per cent. “Hitting seven per cent is not impossible,” said Augusto Santos, the temporary economic planning secretary.

The strong growth figures are a big boost to president Gloria Macapagal Arroyo, who has vowed to create one million jobs a year and cut the poverty rate from 33 per cent in 2003 to below 20 per cent when her term ends in 2010. She is battling low popularity ratings and continuing doubts about the transparency of her May 2004 poll victory.

She said the latest numbers showed that growth can be sustained over the next three years. “We’re the only administration that has not experienced negative growth in any quarter. The regular boom and bust cycle is three years, but it has not happened to us,” she said.

Government spending surged 13.5 per cent in the second quarter, compared with just 3.3 per cent in the same period last year. Officials cited fund outlays in preparation for May’s legislative and local government polls.

Spending on public construction soared 39.6 per cent, versus 11.8 per cent a year ago, as the government stepped up implementation of infrastructure projects that had stalled due to lack of money. The imposition of new and higher taxes in 2006 boosted government revenues by more than a fifth last year and slashed the budget deficit.

Remittances from the more than 8m Filipinos living and working abroad rose 7.8 per cent from a year ago in the second quarter, compared to only 4.8 per cent the previous year. That helped boost household spending, which makes up 70 per cent of GDP

Analysts said the robust first-half growth may encourage the central bank to refrain from adjusting policy rates. Frederic Neumann, regional economist as HSBC, said: “Today’s data on balance reduces the chance of imminent easing by the Bangko Sentral ng Pilipinas as strong domestic demand growth raises the risk that inflation will pick up more quickly than expected.”