Oct. 21 (Bloomberg) -- The Philippine economy may expand 6.4 percent to 6.5 percent this year, at the mid-point of an official forecast range, Finance Secretary Gary Teves said.

The estimate suggests growth will slow in the second half, after expanding 7.3 percent in the first six months, and may be ``on the conservative side,'' said Song Seng-Wun, an economist at CIMB-GK Research in Singapore.

The economy grew 7.5 percent, the fastest pace in two decades, in the second quarter as the government spent more on roads, bridges and schools and consumers bought mobile phones and new homes. The government expects the $117 billion Southeast Asian economy to expand between 6.1 percent and 6.7 percent this year, and as much as 6.8 percent next year. Inflation may average about 4 percent next year, Teves said.

``While there may be a moderation in the second half, it's still likely growth will be in the 6.5 percent to 6.7 percent range'' of the government's forecast, said Song.

There would have to be a ``significant drop off'' in exports, or a decline in domestic demand caused by poor performance in the agriculture industry and higher oil prices for growth to slow dramatically, he said.

Record high oil prices are a ``big risk'' for the economy and a strengthening peso has ``affected'' exporters, Teves said in an interview in Washington yesterday. It's too early to say whether oil prices will stay high and how they will affect growth, he added.

`Gradually Improve'

Oil futures in New York climbed 5.9 percent last week to $88.60 a barrel amid the dollar's depreciation and concern Turkey may attack Kurdish rebels in Iraq, which has the world's third-largest oil reserves. Oil has surged 51 percent in the past year.

The peso has strengthened 11 percent this year against the dollar, to a seven-year high. The Philippine Stock Exchange Index has jumped 28 percent this year, on track for a fifth straight annual gain.

Gains in the peso were sparked by the dollar's weakness; strengthening economic fundamentals such as high international reserves; low inflation and a recovery from government revenue shortfalls in the first half, when tax agencies missed collection targets, Teves said.

``Lately the peso appreciation has somewhat damped the increase in the domestic price of fuel,'' he said. ``The peso will still gradually improve.''

To contact the reporters for this story: Stephanie Phang in Washington at sphang@bloomberg.net.

Last Updated: October 21, 2007 00:51 EDT