Q3 growth beats market expectation

ECONOMIC EXPANSION last quarter beat market expectations, the Philippine Statistics Authority (PSA) reported on Thursday, affirming the country’s place among Asia’s fastest-growing major economies and firming expectations among some analysts of interest rate hikes by next year. Gross domestic product (GDP) grew by 6.9% last quarter — the fastest clip in four quarters though slightly slower than the year-ago 7.1% — which Socioeconomic Planning Secretary Ernesto M. Pernia yesterday attributed “to sustained strong growth in exports and improvements in public spending, which then boosted the manufacturing sub-sector and the services sector.”

The actual pace topped the 6.6% median in a poll of economists Business World conducted late last week that also matched Moody’s Analytics’ own estimate. The third-quarter clip fueled year-to-date GDP growth to 6.7%, already above the lower end of the government’s 6.5-7.5% full-year target for 2017 but still slower than the 7.1% logged in 2016’s first three quarters.

Mr. Pernia noted that the Philippines third-quarter pace already beats China’s 6.8% and Indonesia’s 5.1% for the same three

months, though trailing Vietnam’s 7.5%. Markets are awaiting July- September GDP data to be reported on Nov. 30 by India, which is one of the major Asia economies to which the Philippines is also compared.

BY INDUSTRIAL ORIGIN

Services continued to lead as GDP growth driver, contributing 4.2 percentage points to expansion.

This sector, which accounted for 49.1% of national output, grew by 7.1% last quarter, faster than the preceding three months’ 6.3% and the yearago 6.8%. Services’ growth, however, slowed to 6.7% year to date from the 7.5% recorded in last year’s comparable three quarters.

Industry, which contributed 27.8% to GDP and 2.5 points to growth, saw its expansion edge up to 7.5% from the second quarter’s 7.4%, even as this was a slowdown from the yearago 8.8%. Industry’s growth slowed to 7.1% year to date from 8.5% in 2016’s comparable period.

Growth of agriculture, hunting, forestry and fishing — which accounted for 6.6% of GDP and contributed 0.2 of a point to growth — slowed to 2.5% from the second quarter’s 6.3% and the 3.0% clocked in 2016’s third quarter. But this sector saw a year-todate turnaround to 4.6% growth from a 1.3% contraction the past year.

BY EXPENDITURE TYPE

Household consumption remained a key anchor of the economy, accounting for 55.7% of GDP in the third quarter.

Growth of household spending, however, eased to 4.5% last quarter from the preceding three months’ 5.9% and the 7.2% recorded in July-September 2016. The third-quarter pace tempered year-to-date increase to 5.4% from the 7.3% logged in 2016’s comparable nine months.

Mr. Pernia, in yesterday’s briefing, blamed the slowdown on increasing oil, utilities and food prices. “Some factors would include the rise in oil, gasoline and fuel prices. Also there were some upward adjustments in electricity and water (tariffs) and also some food items were rising somewhat,” he replied when asked for an explanation.

Another major contributor, in terms of expenditure, was exports, consisting of both goods and services, which contributed 53.8% to GDP. Total exports grew 17.2% — the slowest in three quarters — picking up from the 9.0% clocked in 2016’s third quarter. Similarly, year- to- date growth picked up to 19.2% from 9.9%.

Under capital formation — which contributed 23.1% to GDP and grew 6.6% compared to the second quarter’s 8.5% and the year- ago 21.7% — construction (contributing 8.2%) growth slowed to 2.8% from the second quarter’s 7.6% and from the 18.8% of 2016’s third quarter. “The growth was driven by the increase in public construction but was weighed down by the modest growth in private construction,” PSA said in its report.

Growth of government final consumption expenditure, which accounted for 8.7% of national output, picked up to 8.3% from the second quarter’s 7.1% and the year-ago 3.1%.

“In the past, economic growth usually took a deep nosedive after an election year,” Budget Sec. Benjamin E. Diokno said in a separate statement, adding that “government spending continued to be a robust driver of growth, contributing 0.9 percentage point to growth.”

“On the supply side, public construction also posted a 12.6% growth rate,” according to the same statement of the Budget department.

MONETARY POLICY VALIDATED

“The strong Q3 GDP growth together with manageable inflation are in line with our expectations and validate current policy settings,” BSP Governor Nestor A. Espenilla, Jr. told reporters in a mobile phone message.

“GDP growth also remains within current potential which will expand further in the future as investments in both physical and human capital ramp up.”

The Monetary Board kept borrowing rates unchanged in last week’s review, even as the overall increase in prices of basic goods and services clocked a three-year-high 3.5% in October. Inflation averaged 3.2% in the 10 months to October, matching the BSP’s estimate for the entire 2017.

Sought for his outlook, Mr. Pernia replied: “We expect the growth of fourth quarter GDP will be higher, or at least match the third quarter performance.”

Carlo O. Asuncion, chief economist at Union Bank of the Philippines, meanwhile, said in an e- mailed response to queries: “I expect GDP to grow significantly like that of 3Q” on the back of “still robust growth from the usual drivers” of household consumption — fueled by remittances from overseas Filipino workers — business process outsourcing sales, as well as a continued improvement in state spending.

“The strong Q3 2017 GDP growth rate means that the Philippines economy is estimated to achieve sustained robust growth of over 6.0% per year for the sixth year in a row,” said Rajiv Biswas, Asia Pacific chief economist at IHS Markit, noting that growth is seen to “exceed 6.0%” per year from 2018 to 2020.

Mr. Biswas, however, said a pickup in world crude prices and rapid credit growth could prompt the BSP to introduce a rate hike by next month.

Nomura Global Research even penciled a seven percent growth for the fourth quarter to secure a 6.7% average for the full year.

ANZ Research economists said latest growth data could prompt them to raise their 6.5% forecast for the entire year, even as they noted “intensifying” imbalances that could prompt two rate hikes from the BSP between January and March.

Asked whether the faster-than-expected growth pace raises the specter of overheating, BSP’s Mr. Espenilla replied that the economy is “not there yet.”

“That begins to be a concern if we’re persistently growing above potential,” the BSP chief told reporters.

“To keep growing strongly without overheating, we expand potential itself-through high quality investments funded in a sustainable manner,” he explained.