Economy seen to have grown 5.1% in Q1

MANILA, Philippines—Domestic economic growth likely moderated to 5.1 percent in the first quarter albeit still posting above-trend expansion despite the shock waves from the oil-rich Middle East-North Africa and supply chain disruptions from Japan, according to estimates of Bank of the Philippine Islands.

For the full year, BPI sees the Philippine gross domestic product (GDP) growing 5.4 percent, which is still above the trend average of 4.8-percent growth between 2000 until 2011.

A May 11 economic report written by the bank’s financial market group led by economist Emilio Neri attributed these projections to several favorable factors about the domestic economy that were seen sustaining the current momentum.

“The investment-driven growth seen in 2010 is expected to have enough momentum to continue in 2011, as investors remain hopeful that the new government is determined to continue leveling the playing field among the various segments of the economy,” the report said.

For instance, it noted that the Bureau of Internal Revenue’s administrative reform efforts such as the “Run after Tax Evaders” program appeared to be gaining traction.

“The BIR’s nearly 15-percent growth in collections in the first quarter was a notable ramp-up over its performance during the same period in 2010. This improvement has been partly attributed to the BIR’s efforts to widen the scope of taxpayers by capturing segments of the public that were traditionally able to escape the tax net, sending a very positive signal to the business community,” the report said.

International credit-rating agencies have already taken notice, BPI noted. Japan Credit Rating Corp. and Moody’s Investor Services both improved their Philippine outlook to “positive,” paving the way for possible ratings upgrades in the near to medium term.

BPI said the domestic farm sector has also shown promise, evolving from being a “perennial ball and chain” to the domestic economy to becoming a positive contributor as of the fourth quarter of 2010.

“Finally, it is even possible that Japanese manufacturing companies may be looking to outsource, subcontract or even set up shop in the Philippines and other emerging economies in Asia following the impact of the March 11 disaster on their economy’s productive capacity,” the report said.

BPI said there was a low probability that the Philippine economy would replicate the extraordinary growth last year given the decline in government spending and that 2010 would be a more “normal” comparative base year than 2009.

Its outlook of a 5.1-percent first-quarter GDP growth, for instance, was much slower compared with the 7.8 percent a year ago.

“Likewise, recent adverse developments abroad [Middle East-North African unrest and supply chain disruptions from Japan] have compounded the likelihood of the Philippine economy decelerating in the first half of 2011,” the BPI report said.

“While this is not significantly large enough to be worrisome, it may be reasonably compelling to disappoint the more bullish market players and trigger risk aversion in the local bourses,” it said.