BSP says economic growth this year to be led by industry, services

Bangko Sentral Governor Amando Tetangco Jr. sees economic growth this year led by industry and services with ample push from consumption and investments.

Speaking before the Manila Rotary Club yesterday, Tetangco said all indicators point to a sustained economic growth in the upward phase of the business cycle.

“Thus, we are now in the continuing upward phase of the business cycle, as validated by the strong growth of the economy posted in the first three quarters of 2007,” he said.

Based on the BSP’s model on the country’s business cycle, the downward phase had already reached its turning point in the last quarter of 2006, he added.

Tetangco brushed aside fears that the recent economic performance was a short-term phenomenon and that the country’s reduced vulnerability was only a passing trend.

“To illustrate, even in the US, despite all the concern with the subprime woes, the real GDP growth in 2007 looks to be 2.6 percent, the same as in 2006,” he said.

“In the Philippines, as you know, we are expecting 2007 full year GDP growth to be around seven percent, our highest rate in three decades.”

Tetangco said more market analysts now believe that the risks were tilted to an outcome in 2008, particularly in the US, where financial market volatilities would begin to more noticeably filter through to the non-financial and non-housing portions of the economy.

“As the real sector becomes affected, this is an event that could prove to be critical to the Asian growth story,” he said.

Tetangco said the region had become less dependent on the US, but it was still not immune to a US slowdown.

“Clearly, intra-Asian trade has grown, but most of the growth in intra-Asian trade has been an increase in trade with China and India, a portion of whose imports from the region are also re-exported to the US,” he said.

The success of the US and the other major economies in avoiding a prolonged economic slowdown had critical importance to Asia, he added.

Tetangco said despite these factors, the Philippines was in the best macroeconomic shape it had been in two decades as a result of significant structural and policy reforms.

“This makes us more resilient in the face of global challenges,” he said.

Tetangco said the inflation rate has been on a trend decline, with average headline inflation for the first 11 months of 2007 at 2.7 percent – way below last year’s 6.2 percent as well as the target of four to five percent.

The country’s external position was also in substantial surplus of around $8.5 billion, more than double last year’s level, due mainly to the continued strength of the current account, he added.

Tetangco said the gross international reserves (GIR), at an all-time high of $32.7 billion, likewise remained adequate and within internationally accepted benchmarks.

“Moving forward and barring any unforeseen risks, economic growth is expected to continue,” he said.

“This will be driven by the combined acceleration of the industry and services sectors on the production side and consumption and investments – both private and government – on the expenditure side.”

Tetangco said the country’s payments position would also remain as a source of strength for the economy over the near term. 

“Dollar inflows particularly from remittances and foreign investments are likely to remain robust,” he said.

“This should enable us to further build up our cushion of international reserves, and continue to provide support to the peso.”