2012 Philippines economic growth level up at 6.4 percent in Quarter 1


 It's more fun in the Philippines; it's more fun to invest in the Philippines.

In spite of shaky economy in the US and in Europe; Philippines  economic jump shows it's more fun to invest the Philippines.

The Philippine economy grew a faster-than-expected 6.4 percent in the first three months of the year, boosted by increased government spending.

The National Economic and Development Authority says the pickup from a sluggish 3.7 percent growth in 2011 also shows renewed business confidence in the Philippines.

The growth was fueled by a surge in public construction as the government splashed out on new roads and airports.

The government late last year announced a 72 billion peso ($1.66 billion) stimulus package to cushion the economy from Europe's debt crisis.

The services sector, which accounts for more than half of the economy, was supported by a rise in real estate and tourist arrivals.

The government expects full year growth of 5-6 percent.

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Philippine infrastructure planners have dreamt for years of building an elevated highway above the traffic-clogged streets of metropolitan Manila and linking the capital with the fast-growing cities and ports to the north and south.

Benigno "Noynoy" Aquino, the president, last week approved not one but two toll road projects across the city and instructed ministers to speed up the tendering process so they could be completed by the time he steps down from office in four years. He was hoping, he joked, for an easier journey to the beach.

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The proposed toll road projects, together worth 48bn pesos ($1.1bn), are adding to growing business optimism about the Philippines' medium-term prospects. Analysts say the country is on the cusp of its first investment boom since the Asian financial crisis of 1997, after more than a decade of political instability.

Many of the country's biggest conglomerates are rolling out their most ambitious spending plans in years to build shopping malls, office towers and residential projects.

The president is inviting private companies to build infrastructure projects, such as airports and light rail systems, through public-private partnerships that bind the government to help ensure investors recover costs and earn minimum returns through user charges or direct government payments.

Ramon del Rosario Jr, chairman of the Makati Business Club, a grouping of the country's biggest companies, believes foreign investors are also expressing confidence in the Aquino administration's efforts to tackle corruption.

"The main thing that has changed is this idea that we are now serious about good governance, about integrity in government, about fighting corruption," he said in a television interview, shortly after the Senate voted to remove the chief justice of the Supreme Court for failing to declare US dollar deposits in his asset disclosure statements.

Shares in listed companies betting big on infrastructure, including San Miguel and Metro Pacific – the two proponents of the highway project – have surged since late last year, making the Philippines one of the best performing equities markets in the world. Despite market volatility triggered by the risk of a Greek exit from the EUROZONE, the Philippine Stock Exchange index is up 14.8 percent this year after hitting record highs 19 times in the first five months of 2012.

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The Philippines is announcing first-quarter gross domestic product results on Thursday, and analysts predict that economic growth year-on-year may have accelerated to 4.6 per cent from 3.7 per cent in the fourth quarter, according to a Reuters poll.

Most economic forecasters say the Philippines will expand 5 per cent or more next year, giving the country a fighting chance of hitting the government's growth target of 7-8 per cent in 2016.

In the short term, however, the country's economic prospects are more subdued amid continuing sluggishness in the US and Europe, and a slowdown in China.

Exports, which are equivalent to about a third of the economy, fell 1.2 per cent from a year ago in March as deliveries to East Asia dropped sharply.

Some of the country's exports to China, such as bananas and other fruits, have been affected by the dispute between the two countries over the Scarborough Shoal reef in the South China Sea. However, Philippine trade officials do not expect the diplomatic dispute to affect deliveries of electronics parts and minerals, which Chinese companies need to produce other goods.

Mr Aquino also faces the challenge of improving regulatory capacity across government agencies and units, and resolving policy conflicts that are slowing down the approvals for large investments, say business leaders.

A case in point is plans by the Philippine unit of Xstrata' to spend up to $5.9bn in the next five years to develop one of the world's largest untapped mining deposits in the southern Philippines. The project is potentially the country's single-biggest inward foreign investment but is being stalled by a local government ban on open-pit mining.

Milagros Reyes, who heads PetroEnergy Resources, an exploration group, complains that investors often get caught between different government agencies with overlapping mandates. "We bring in foreign drill ships that are leased per day only to be told to wait for days for permits by maritime authorities" seeking to protect the domestic shipping industry, she said.

More Fun! Incredible Economic Jump of the Philippines in Q1 2012

Incredible! Amazing! While other Asian countries describe themselves with superlatives, the Philippines national ad campaign promises only "more fun."

Filipinos have reasons to smile. Asia's perennial underachiever is outperforming. This week saw more successes: Moody's upped its outlook on the country's credit rating to "positive," citing prudent fiscal management. An anti-graft drive notched a win with a guilty verdict in the impeachment trial of a former chief justice. And first-quarter gross domestic product growth of 6.4%, announced Thursday, defied most forecasts as well as the mood in the global economy.

But to build on the promise, the Philippines must deliver on three main growth drivers.

Business-process outsourcing is already booming due to strong English skills, cheap rent and low wages. A fondness for basketball and Hollywood movies is an advantage, too, when it comes to staffing call centers with workers who can make a cultural connection with U.S. customers. Starting from scratch a decade ago, the sector generated revenue of $11.25 billion last year. CLSA says that could double by 2015.

Government officials say tourism is a low-hanging fruit. They aim to triple arrivals to 10 million by 2016. A $5 billion gambling hub under construction will help. So too a surge in new planned hotel rooms and a rising tide of Chinese visitors, whose numbers were up almost 30% last year.

Arrivals hit a record high 1.2 million in the first quarter. But there are challenges. A regional economic slowdown would hurt. Manila's spat with China over potentially resource-rich areas of the South China Sea has raised diplomatic tensions that could stymie Chinese tourism too.

Poor infrastructure is a bigger issue. Security concerns at the country's airports have led to restrictions on its carriers. International aviation regulators won't let the nation's major airlines fly new routes to South Korea or the U.S.—their top two markets for visitors—until domestic airports improve.

Indeed, infrastructure spending is the third leg of the country's growth agenda. The government has pledged an extensive public-works program. The first quarter saw public construction jump 62% over last year. That pace must be sustained. Private investment activity also needs to pick up. RBS says weak private investment was a factor in disappointing first quarter construction overall, which was up just 0.3% from a year earlier.

Manila is more fun these days. But the Philippines must get serious on infrastructure to make the most of its time in the sun.

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