* Q1 GDP shrinks 4.2% yr/yr, grows 0.3% qtr/qtr
* Government says economy on the mend
* Cbank seen keeping key rate steady on Wednesday
(Adds comments of economist, economic official)
By Neil Jerome Morales and Karen Lema
MANILA, May 11 (Reuters) - The Philippine economy shrank
more than expected in the first quarter, though sequential
momentum showed a recovery was underway and suggested the
central bank will keep rates at a record low at this week's
policy review to support the revival.
Gross domestic product fell 4.2% in the March quarter from a
year earlier PHGDP=ECI , the statistics agency said on Tuesday,
worse than the median estimate of a 3.0% contraction in a
Reuters poll, but an improvement from the 8.3% slump in the
previous quarter.
The economy also improved on a sequential basis, with output
rising 0.3% from the previous three months on seasonally
adjusted terms to mark its third straight quarter-on-quarter
growth.
While domestic demand remained sluggish amid
pandemic-induced lockdowns, household consumption posted the
smallest contraction in four quarters at 4.8%, while government
spending grew 16.1%, the fastest in the last three quarters.
"The country's strong economic position before the pandemic
and improving economic data in recent months point to an economy
that is on the mend," Economic Planning Secretary Karl Chua said
at a briefing.
That bolsters government expectations that the economy will
begin to recover in the second quarter, he said. The government
has set a growth target of 6.5%-7.5% for this year and 8%-10%
for next year.
"BSP Governor (Bejamin) Diokno has signalled his preference
to keep monetary support for as long as the economy is in
recovery mode and we continue to price in a steady policy rate
for the balance of 2021," said ING senior economist Nicholas
Mapa.
The central bank is widely expected to keep its benchmark
interest rate unchanged at a record low of 2.0% on Wednesday for
a fourth consecutive meeting. Some economists even expect the BSP to stand pat for the
rest of 2021, despite inflation having breached its 2%-4% target
band mainly due to tight pork supply.
A safe reopening of the economy, implementation of recovery
measures and acceleration of vaccine rollout will underpin
growth beginning this year, Chua said.
The Southeast Asian country is battling one of Asia's worst
coronavirus outbreaks with more than a million cases recorded
and more than 18,000 deaths. A new surge in infections starting in March had prompted the
reimposition of stricter mobility curbs, but daily new cases
have gone down from a peak.
"Once the present spike is over, we can implement quarantine
relaxations in a phased approach to boost our recovery this
year," Chua said.
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