is this good news or what? what do you think? can we sustain this?

Economy expands 6.9%

1st-quarter GDP growth strongest in 17 years

MANILA, Philippines -- The Philippine economy surged 6.9 percent in the first quarter of the year from the same period in 2006, way above expectations, prompting officials to declare that the country was no longer a laggard in Asia.

Low inflation, a strong peso, government’s pump-priming activities and preparations for the elections pushed gross domestic product (GDP) growth to its highest level since 1990, the National Statistical Coordination Board reported Thursday.

The gross national product -- GDP plus remittances from overseas Filipino workers and the earnings of Filipino companies abroad -- grew 6.6 percent in the first quarter.

“The Philippines is on a roll,” President Gloria Macapagal-Arroyo said in a statement issued from Australia, where she is on a state visit. “This is the fastest pace in almost two decades -- 9.1 percent growth in services, 5.3 percent in industry, 4.2 percent in agriculture.”

Growth in the services sector, which includes transportation, finance, trade and communication, was largely due to the booming business process outsourcing (BPO) industry, mostly made up of call centers.

Bill Belchere, an economist at Macquarie Bank, described the GDP growth in the first quarter as a “stunner.”

Investors cheer

Stock market investors cheered the GDP growth, which beat market projections of 5.7-5.8 percent.

The Philippine Stock Exchange index jumped 76.12 points or 2.23 percent to 3,474.67, its second-highest level in history, after the all-time high of 3,505 recorded on May 22.

“The news of a better-than-expected growth triggered the run-up,” said Astro del Castillo, general manager of First Grade Holdings Inc. “This is the vitamins that the bulls are waiting for. The sustained growth is a good sign for the capital-raising of listed companies.”

Government officials said the 2007 target of 6.1-6.7 percent growth was well within reach and could be revised upward, with the country now closer to hitting a hitherto elusive 7.0-percent growth.

Economists say the Philippines needs to grow 7-8 percent annually to cut poverty substantially.

Joey Salceda, a former stockbroker and until recently President Arroyo’s chief of staff, said the GDP growth vindicated the planned “7-8-9 percent” growth target he propounded three months ago. The target is envisioned to place the country at a higher growth plane and avoid the boom-and-bust cycles that have wiped out gains achieved by economic reforms.

“Underlying trends show there is sufficient momentum for growth acceleration, swinging around the 7-percent GDP average for the rest of the year,” said Salceda, governor-elect of Albay province.

Salceda said strong revenue collections and proceeds from the government’s privatization program should ensure sufficient funding for the administration’s massive infrastructure program, which is expected to be the main growth driver in the next three years.

Low interest rates

Economic Planning Secretary Romulo Neri said the drop in interest rates encouraged borrowings that were used to finance investments, while the slowdown in inflation supported consumption by households.

Finance officials said the drop in interest rates was largely due to the rise in the collection of revenues that resulted in a lower budget deficit.

The decline in the budget deficit, in turn, improved the country’s credit image, causing lenders to seek lower interest rates on the government’s borrowings. The interest rates, done through the issuance of bonds, are used as benchmarks for setting the interest rate on bank loans.

The Arroyo administration also took pride in the strengthening of the peso, which, it said, helped temper inflation.

A strong peso makes imported goods cheaper, encouraging spending. Higher spending means higher demand for goods and services, which leads to growth in production.

Dennis Arroyo, director for policy and planning at the National Economic and Development Authority, said the GDP growth in the first quarter placed the country on competitive footing with neighboring countries.

He noted that while the 6.9-percent GDP growth was still lower than China’s 11.1 percent and Vietnam’s 7.7 percent, it was higher than growth rates in many other countries.

Arroyo noted that Singapore grew by 6.0 percent, Indonesia also by 6.0 percent, Hong Kong by 5.6 percent, Malaysia by 5.3 percent, Taiwan by 4.1 percent and South Korea by 4.0 percent.

Neri said investments must grow some more so they can generate jobs that can help reduce poverty levels.

He said the macroeconomic reforms -- improving tax collection and increasing government spending on social services -- “currently implemented must now be complemented with microeconomic reforms to improve industry competitiveness.”

He said microeconomic reforms like making credit more accessible to small entrepreneurs and reducing the cost of doing business should be done. With reports from Gil C. Cabacungan Jr. and Elizabeth Sanchez-Lacson; with INQUIRER.net

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