Philippine economy grew 7.9% in Q2

ABS-CBN News

Posted at Aug 26 2010 10:14 AM | Updated as of Aug 27 2010 09:21 PM

MANILA, Philippines (3rd UPDATE) - The country's economy grew much faster than expected in the second quarter, expanding by 7.9% from a year earlier.

The National Statistical Coordination Board on Thursday said the country's gross domestic product (GDP) in the first half rose by 7.9% from last year.

On a seasonally adjusted basis, the economy grew by  1.3% from the first quarter.

The revised first quarter GDP stood at 7.8% from 7.3%.

The second quarter GDP growth beat the 5.9% to 6.9% estimates of the National Economic and Development Authority (NEDA).

The NSCB attributed the second quarter growth to the peaceful national elections, improved investors confidence especially among local investors, the global economic recovery and increased government spending.

The main growth drivers were the industry and services sectors, and remittances from Filipinos working abroad, offsetting a decline in agriculture.

The industry sector posted a double-digit growth for the second consecutive quarter at 15.8%, boosted by solid growth in manufacturing, construction, mining and quarrying.

The services sector went up by 6.4% in the second quarter, bringing the first half growth to 6.7%.

The farm sector shrank by 3% in the second quarter and by 2.9% in the first 6 months.

Rolando Dy, an economist at the University of Asia and the Pacific, said the second quarter growth was spurred by a recovery in exports, mainly electronics. He said, however, that such a high growth would be difficult to sustain, given perceptions of a stalling global recovery.

"With weak global markets, high growth is not sustainable."

The forecast-beating second-quarter growth boosted the local stock market, with the main index of the Philippine Stock Exchange rising by 1.2% in late trade.

"The better-than-expected growth led to a spike in the market and offset some of the gloomy global economic outlook," said Jose Vistan, research chief of AB Capital Securities.

Vistan agreed with some analysts' view that the government would be hard-pressed in maintaining a high growth for the rest of the year.

"From the looks of it, sustainability is doubtful with some indicators slowing in the second half. A growth above 7% might not be sustainable. The growth path story is sustainable, but not the growth pace."

The government had raised this year's growth target to 5% to 6% and next year's goal to 7% to 8%.

Growth above 7.1% would be the fastest in 35 years.

The central bank, which meets a few hours after the release of the GDP data, is widely expected to keep the overnight borrowing rate steady at a record low of 4%, given a benign outlook for inflation.

Analysts expect the central bank to delay raising the key policy rate for the first time since the global financial crisis to October or November, when price pressures are expected to emerge from strong domestic growth and higher fuel costs. - Rocel Felix, abs-cbnNews.com; With additional reports from Reuters