, May 21 , 2004
By Des Ferriols  -  The economy posted a surprising five-percent growth in the first quarter of the year, buoyed by the surge in the agriculture sector that economists said was enough to offset the weakness in manufacturing.

The National Economic and Development Authority (NEDA) said yesterday that based on leading indicators, the first quarter gross domestic product (GDP) growth surpassed expectations.

The government expects an economic expansion of 4.9 percent to 5.8 percent this year after a 4.5-percent growth in 2003.

NEDA Director General Romulo Neri said yesterday that the agriculture sector performed strongly in the first three months of the year due mainly to the robust performance of the agriculture sector.

According to Neri, the agriculture sector as a whole grew by at least eight percent across the board, led by rice and corn, poultry and livestock sectors.

Aside from the carry-over effect from last year’s harvest, Neri said favorable weather boosted agricultural production in the crops sector, as well as the widespread use of hybrid planting materials.

"Since the growth of the service sector is largely stable, we are expecting agricultural production to boost overall GDP even if the manufacturing sector falls back," Neri said.

Economists, however, said growth this year would be constrained by a limited government infrastructure budget, high oil prices, and continued growth in imports, which could hurt the trade balance.

High oil prices, which have set off calls from labor groups for a transport fare increase and wage hike, are likely to push inflation to 4.1 percent this year from three percent in 2003, the economists said.

Rising inflation and an expected increase in US interest rates could pressure the Bangko Sentral ng Pilipinas (BSP) to increase its key overnight rates to ensure stability in the local currency.

"There is nothing the central bank can do with higher external oil prices," said Mike Moran, regional economist at Standard Chartered Bank in Hong Kong.

"If we continue to see a sustained rise in oil prices, it would result in a weak currency and high interest rates, posing a double whammy for the Philippines," he said.

NEDA had originally projected GDP to grow by 4.1 percent in the first quarter of the year, touching the low end of the government’s official projection and lower than the first quarter growth recorded in 2003.

The source of the growth, however, continued to be a source of discomfort among economists who have expressed concern that consumer spending was not sustainable unless translated into manufacturing and industry growth.

NEDA reported in the 2003 national income accounts that the services sector has been providing the impetus for growth, driven mostly by higher consumption of telecommunications services fueled by the phenomenal popularity of mobile telephony.

Reported by: Sol Jose Vanzi

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