Philippines GDP growth quickens on construction boom

MANILA: The Philippine economy grew at a sizzling pace in the second quarter, topping expectations as a government-led construction boom and an extended rebound in the farm sector took some of the sting off a peso currency wallowing at 11-year lows.

The South-East Asian nation is the second-fastest growing economy in Asia after China, though some analysts cautioned that activity could wane if foreign investors are scared off by president Rodrigo Duterte’s deadly war on drugs.

Gross domestic product rose 6.5% in the second quarter from a year earlier, the national statistics agency said on Thursday, picking up from the 6.4% pace in the first quarter, and above the 6.2% forecast in a Reuters poll.

Quarter-on-quarter growth at 1.7% also topped the 1.6% pace projected in a Reuters poll, and faster than the previous quarter’s upwardly revised 1.3%.

“We are well on track to meeting our fullyear target growth of 6.5%-7.5%,” economic planning secretary Ernesto Pernia told reporters at a briefing.

Like its regional peers, the Philippines has benefited from an improvement in global demand, with exports up nearly 14% in the six months to June.

Household consumption grew at slightly faster annual pace of 5.9% in the second quarter compared with 5.8% in the first, while government spending jumped 7.1% in a dramatic rise from the revised 0.1% gain in the March quarter.

“The sequential increase implies that the economy is gaining momentum,” said ANZ economist Eugenia Fabon Victorino in a note to clients.

Indeed, Manila aims to lift growth to as much as 8% during Duterte’s term through a six-year, US$180bil “Build, Build, Build” infrastructure programme.

All the same, the outlook is not without risks, according Capital Economics senior economist Gareth Leather, who said that Duterte’s controversial war on drugs has started to undermine investor sentiment.

The security crisis in the southern city of Marawi is also a “potential risk to the nearterm economic outlook,” as it could deter foreign direct investment into the country, said Rajiv Biswas, Asia Pacific chief economist at IHS Markit.

Thousands of people have been killed in the anti-drugs campaign, Duterte’s signature policy, since it was launched on June 30 last year, with the intensity of the crackdown alarming the international community.

Duterte has repeatedly said solving the drugs scourge was necessary for the economy to prosper.

Investors were also focused on the peso currency following a sharp slide since July though it was steady after the GDP report.

Policymakers have sought to soothe frayed nerves in the foreign exchange market after the peso hit an 11-year low, saying currency movements do not reflect the underlying strength of the local economy.

Bangko Sentral ng Pilipinas governor Nestor Espenilla said yesterday the central bank was “ready to adopt policies” to keep prices and financial markets stable.

The central bank has kept policy settings steady since a 25-basis-point hike in September 2014.

A construction boom in the Philippines has contributed to the peso weakening amid a recent surge in capital goods imports, setting the nation on course to book its first annual current account deficit in 15 years.

The infrastructure drive saw public construction surge 12.0% in the second quarter from 1.9% in the first three months of the year, but private building work slowed to 4.7% from 13.0% in the March quarter.

Property developers have reported strong earnings in the first half, with Ayala Land posting an 18% increase in net income, while Megaworld’s net profit rose 11%. — Reuters

The sequential increase implies that the economy is gaining momentum. Eugenia Fabon Victorino