MANILA, Philippines—The Philippine economy grew at its fastest pace last year since the 1986 Edsa People Power Revolution, expanding 7.3 percent due to strong domestic demand fueled by the billions of dollars overseas Filipino workers sent home.
Government data showed gross domestic product (GDP)—the total value of goods and services produced in the country—rose a seasonally adjusted 3.0 percent in the final quarter of 2010, more than double market expectations and a turnaround of a third-quarter contraction.
The National Statistical Coordination Board (NSCB) said the strong performance of the Philippine economy—coming off growth of just 0.9 percent in 2009—was achieved on the back of the world recovery from the global financial crisis.
“The global economic recovery which resulted in record growth rates of foreign trade … contributed to an economic performance in 2010 that well surpassed the government’s target of 5.0 percent to 6.0 percent,” the NSCB said.
Also boosting growth were higher remittances from the millions of Filipinos working abroad and the extra money that was pumped into the economy by politicians who campaigned in the national and local elections held in the middle of last year.
“Remittances have been pretty healthy and that has really helped to support private consumption in the Philippines,” said HSBC economist Sherman Chan. Remittances from overseas Filipino workers are expected to top $20 billion this year.
The NSCB said industry delivered its best seasonally adjusted quarterly growth in at least 15 years, rising 6.7 percent in October to December from the previous three months, with food manufacturers and mining leading the way.
“This shows the economy is not losing steam yet. That is in large part due to accommodative monetary policy, which has helped to sustain investments even though the government is pursuing fiscal consolidation,” Chan said.
Strong growth from industry and recovery by the farm sector more than offset falling government spending, which fell an annual 7.6 percent in the quarter.
NSCB Secretary General Romulo Virola said the 7.3-percent full-year GDP expansion was the highest since 1986 when the dictator Ferdinand Marcos was toppled in the Edsa Revolution.
Growth by sector
Private sector investment in construction, machinery and equipment resulted in a robust 17-percent growth in gross domestic capital formation. This supported the healthy pace of growth in manufacturing and services, according to the NSCB.
Industry contributed 3.9 percentage points to total GDP growth on the back of brisk manufacturing, particularly electrical machinery, petroleum and coal products, and food—thanks to a strong pick-up in domestic demand and the rebound in external trade.
The services sector contributed 3.5 percentage points to GDP growth, boosted by the strong performance of trade and private services. This was complemented by flourishing domestic investment, robust expansion in business process outsourcing, hotels and restaurants, wholesale and retail trade, and import and export trade.
Due to fewer typhoons, the agriculture sector managed to grow 5.4 percent in the fourth quarter. “Only two typhoons hit the country compared to seven in the last quarter of 2009,” Socioeconomic Planning Secretary Cayetano Paderanga noted.
Nonetheless, full-year growth in agriculture, fishery and forestry was subdued due to the lingering effects of the El Niño weather phenomenon in the first half of 2010.
Inflation, interest rates
Robust domestic demand, and rising global food and fuel prices, however, are adding to concerns about inflation.
“We were expecting the central bank to hike rates by the second quarter. But given these strong growth numbers, I think there’s scope for the central bank to normalize its monetary policy as early as the first quarter,” said Euben Paracuelles, an economist at Nomura in Singapore.
The Philippines is one of only two countries in Southeast Asia—the other is Indonesia—not to have raised interest rates since the end of the global financial crisis. The policy rate has been at a record low of 4 percent since July 2009.
The Bangko Sentral ng Pilipinas (BSP), however, said inflation was manageable.
“Not necessarily inflationary because the economy has expanded, its absorptive capacity has grown,” BSP Deputy Governor Diwa Guinigundo said in a text message to reporters.
Inflation is expected to rise up to the third quarter before stabilizing toward 2012, the BSP said on Friday. Annual inflation was 3.0 percent in November and December, after hitting a one-year low of 2.8 percent in October.
Exciting prospects
“We are looking toward exciting growth prospects,” Guinigundo said.
Likewise brimming with optimism, Paderanga said “the 2010 economic performance bolsters confidence that the economy is on a path of strong recovery.”
Arsenio M. Balisacan, dean of the University of the Philippines School of Economics, agreed that the rate of economic expansion in 2010 could provide momentum for future growth. But he added the challenges were many.
“Government has to raise revenue to sustain support for infrastructure development, investment in the social sector, particularly education and health, and institution building,” Balisacan said.
John Forbes, an investment adviser with the local American Chamber of Commerce, said the promise of further political stability during President Benigno Aquino III’s six-year term offered hope for a sustained period of strong growth.
He cited Mr. Aquino’s anticorruption campaign, social welfare spending and multibillion-dollar infrastructure upgrade plans as factors the Philippines could finally start to match its dynamic Asian neighbors.
“The Philippines is an economy in the world’s fastest-growing region and it is surrounded by economies that have grown at very high rates for a very long period of time,” Forbes said.
He said average GDP growth for the Philippines had been below 5.0 percent for the past decade.
“What this figure (2010 GDP growth) demonstrates is the potential of the Philippine economy to grow almost twice as fast (as 5.0 percent),” he said. With reports from Agence France-Presse and Reuters
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