053107: RP growth seen fastest in 3 quarters

By Francisco Alcuaz Jr. and Michael J. Muñoz

Bloomberg

THE Philippine economy probably grew in the first quarter at the fastest pace in nine months as money sent home by nationals working abroad buoyed consumer spending and exports to China soared. The $117-billion Southeast Asian economy expanded 5.7 percent from a year earlier, up from 4.8 percent in the fourth quarter, according to the median forecast of 14 economists in a Bloomberg survey. Adjusted growth from the previous quarter was likely 1.4 percent. The numbers are due Thursday. “We’re seeing fairly strong jobs and income growth in Asia and the Middle East, which continues to be supportive of Filipino workers abroad, from domestic workers to sailors to dentists to doctors,” said Song Seng Wun, an economist at CIMB-GK Securities Pte in Singapore. “That’s why services and the economy are growing so fast.” One in 10 Filipinos works overseas, with the funds they send home to their families fuelling purchases of fast food, mobile phones and new homes. The International Monetary Fund says there are “natural limits” to this reliance on labor exports and that more investment is needed if the Philippines is to move to a “decisively stronger” growth path. President Arroyo raised taxes last year to narrow the budget deficit while building more roads, bridges and ports to attract investment and reduce unemployment from 7.8 percent, the second-highest of 15 Asia-Pacific economies tracked by Bloomberg. The government hopes that will help spur growth this year to as much as 6.7 percent from 5.4 percent in 2006. ‘Little bit ambitious’ ARROYO’S target “is a little bit ambitious. It’s hard to put a finger on a catalyst,” said Lim Su Sian, a Singapore-based economist at DBS Group Holdings Ltd. “In Indonesia, there is a clear push with regard to investment.” In the Philippines, “the details and implementation are not so obvious.” Investment as a percentage of gross domestic product has been declining in the Philippines for the last four years, dropping to 14.8 percent in 2006 according to figures from the Asian Development Bank. The proportional rate in Indonesia was 24.6 percent last year, up from 21.4 percent in 2002. “Inadequate investment is the main factor that has curtailed growth and employment” in the Philippines, the ADB said in its Asian Development Outlook 2007 report this month. “Improvements in the investment climate are needed.” Growth in the Philippine economy this year is expected to be 5.4 percent, unchanged from 2006, according to the ADB. The Indonesian economy, Southeast Asia’s largest, is expected by the Manila-based lender to expand 6 percent in 2007, accelerating from 5.5 percent last year. Consumer spending REMITTANCES from as many as 8 million overseas nationals, which make up about a 10th of the Philippine economy, will likely sustain consumer spending and economic growth this year. Funds sent home jumped 24 percent in the first quarter from a year ago to $3.49 billion. That compares with a 15-percent gain in the same period in 2006. SM Prime Holdings Inc., the nation’s largest shopping mall company, said sales climbed 24 percent in the first three months of 2007 from a year earlier to P3.6 billion. Its parent, SM Investments Corp., said department-store and other sales increased by 20 percent. Ayala Land Inc., the nation’s largest developer, had an 18-percent lift in sales to P6.45 billion. Jollibee Foods Corp., the nation’s biggest fast-food company, had a 15-percent gain in sales. Philippine Long Distance Telephone Co., the nation’s largest mobile-phone service provider, had a 10-percent gain in sales. Stronger peso FOREIGN-EXCHANGE remittances also boosted consumer spending by pushing the peso to a six-year high. That made oil and other imports cheaper, bringing inflation to a seven-year low of 2.2 percent in March, leaving more money for domestic purchases. The stronger peso didn’t hurt exports, because “most Asian currencies are appreciating,” CIMB-GK’s Song said. The currency has increased 6 percent this year against the US dollar, the third best performer among 16 Asia-Pacific currencies tracked by Bloomberg. Overseas sales, which make up as much as two-fifths of the Philippine economy, increased 13 percent in the first quarter from a year earlier, surpassing Arroyo’s 11 percent target for the year. Shipments to China surged 46 percent. While remittances have spurred consumer spending and capped import costs, they’ve fueled an acceleration in money supply growth that may stoke inflation. The central bank this month started accepting deposits from banks’ trust units as well as state-run pension funds and companies to drain money supply. It may have to do more, damping growth, said Frederic Neumann, an economist at HSBC Holdings Plc in Singapore. “We continue to look for monetary tightening over the next few months as money-supply growth remains too fast for comfort,” Neumann said. “Towards the end of the year, higher inflation, tighter monetary conditions and lower export growth may reduce the rate of economic expansion.”

 

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