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The Philippines’ economy posted robust growth in the early part of 2010. Gross Domestic Product (GDP) grew to 7.3% (year-on-year) in the first quarter of 2010 from 1.1% in 2009. This growth was far faster than expected and was driven by a sharp rebound in exports and manufacturing.  Please see figure 1. Growth was also attributed by strong election-related spending both in private and public.

 

The sharp expansion in the manufacturing sector brought production above the pre-crisis level and contributed 4.3 percentage points to overall growth. Manufacturing production grew by 20.7% year-on-year in Q1 2009, pushing production 11.5% above its pre-crisis peak of Q1 2008. Manufacturing of petroleum products, foods and electrical machineries mainly for exports were the top drivers of growth.  The services sector also grew by 6.1% in Q1 driven by strong growth of private services and trade, which returned to growth after contracting in 2009. Finance and real estate services also improved as the economic recovery firmed up.

Investments grew by 24.3% in Q1 2010 after contracting by 5.7% in 2009, driven by investments in durable equipment particularly in transport and telecoms. Private consumption continued to recover from its weak 2009 performance. An improving labor market and continued remittance inflows contributed to this recovery.

Government spending contributed 1.6 percentage points to overall growth, seemingly reflecting pre-election spending.  Spending likely grew faster in Q1 to amid selective spending ban ahead of the election.

PSE-Listed companies surged by 55% in 2009 despite from the slowdown in economic activity partly due to non-recurring gains. These originate from divestments in a few large corporations that refocused their activity from tradable to non-tradable.

While growth surged in Q1 2010, it is projected to ease as both monetary and fiscal policies normalize. GDP growth is projected to be at 4.4% for 2010 and 4% for 2011 with risks being equally distributed – on the downside, these are primarily external (linked to developments in Europe), while on the upside they are internal (e.g., progress by the new Aquino government in achieving quick gains against corruption, the introduction of a strong reform program and fiscal consolidation). Consumption is projected to benefit from better labor market performance but to receive less support from remittances as their real peso value is projected broadly flat (against 10% growth in 2009).

Reference:
Philippines Quarterly Update, The Recovery Continues Despite Global Financial Turbulence, June 2010