MANILA, Philippines -- (UPDATE 2) The economy expanded by a forecast-beating 7.3 percent in 2007, its fastest pace in 31 years, boosted by the services sector, the government said Thursday.

"In an environment of benign inflation, low interest rates and a strong peso, the Philippine economy turned in its best performance in 31 years," said Romulo Virola, the secretary-general of the National Statistics Coordination Board.

"On the demand side, increased consumer spending, investments in public and private construction, government spending and exports of non-factor services largely contributed to the remarkable performance of the economy."

Following the strong performance last year, Economic Planning Secretary Augusto
Santos said the government is maintaining its forecast that growth will slow to 6.3-7.0 percent in 2008 given the expected slowdown in the US, the biggest market for Philippine exports.

"What we are saying is that if there is a recession in the US, then that will affect us, but the situation is closely being monitored," he told a media briefing.

Santos said the world's largest economy is unlikely to slip into recession.

"As we see it, there may in fact be no recession in the US given the stimulus package of the Bush administration.?

SERVICE BOOM

The Philippine economic growth last year was led by the robust services sector whose output grew 8.7 percent.

Industrial output increased 6.6 percent, while farm production rose 5.1 percent.

Gross national product, swelled by money sent home by Filipinos working overseas, grew 6.5 percent in the fourth quarter from a year earlier and 7.8 percent in the full year.

The economy grew a seasonally adjusted 1.8 percent in the fourth quarter, faster than expected.

From a year earlier, the economy grew 7.4 percent in the fourth quarter.

"The GDP data was a surprise. The country's economic growth remains very robust and it is unlikely to decelerate in the first half," said Frederic Neumann, economist at HSBC in Hong Kong.

"The Philippine government's proposal for a P75-billion stimulus package should even add to this year's growth and cushion the impact of an economic slowdown in the US," said Neumann.

RATE CUT

Analysts said the data implied that the Philippines' growth momentum would continue into 2008, and that the central bank may cut rates by 25 basis points at a policy meeting later on Thursday, despite earlier expectations of a 50 basis point cut.

"Evidently economic momentum is very strong. Therefore, if we see a slowdown in economic growth, it would only materialize in the second half of the year," Neumann said.

"We therefore see a reduced need for the central bank to cut rates aggressively now and we might see that today with a 25 basis point cut."

But Vishnu Varathan, an analyst at Forecast Pte., said last year's performance should not affect the rate policy.

"We really don't want to be looking through the rear-view mirror in constructing monetary policy. In my view, this number should not materially affect the decision today." From reports by Thomson Financial, Reuters, and Agence France-Presse; edited by INQUIRER.net

($1 = P40.69 pesos)

USEFUL LINK:
http://www.nscb.gov.ph/sna/2007/4thQ2007/2007qpr4.asp.