Philippines outpaces China with 6.9% GDP growth

MANILA: The Philippine economy clocked forecast-topping growth of 6.9% in the third quarter, making it one of Asia’s fastest growing and building expectations for a near-term increase in interest rates.

The on-year growth, which was above the 6.5% forecast in a Reuters poll and outpaced China’s 6.8% increase in the same period, was driven by strong industrial and services output, the statistics agency said yesterday.

Despite central bank arguments that current monetary policy remains appropriate, economists see growing price pressures from the strong demand increasing the likelihood of policy tightening.

Economic Planning Secretary Ernesto Pernia said he was optimistic the government’s 6.5-7.5% growth target for 2017 would be met, supported by higher state spending and improving exports and farm output.

“We are on track to meeting the full-year target range “Pernia said in a media briefing.

Quarter-on-quarter growth of 1.3% was below the 1.6% forecast in a Reuters poll and weaker than the previous quarter’s upwardly revised 2.0%.

Like its peers in Asia, the Philippines is benefiting from the steady rebound in exports, which were up 12.2% in the nine months to September.

But economists have flagged Philippine President Rodrigo Duterte’s war on drugs and “erratic policymaking” as potential risks that could weigh on investor sentiment.

“It is notable that foreign direct investment has dropped off this year, while investment growth has continued to weaken,” Capital Economics said in a note.

Duterte has pledged to modernise the country’s airports, roads, railways and ports through a six-year $180-billion, “Build, Build, Build” initiative to attract much-needed foreign direct investment and lift economic growth.

Government consumption in the third quarter rose 8.3% from last year, faster than the previous quarter’s 7.1%, helping offset cooling household demand.

Growth in capital formation weakened to 6.6% in July-September, from 8.5 in the June quarter.

After the data’s release, Philippine central bank governor Nestor Espenilla sought to allay concerns of overheating.

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

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

Espenilla said the strong economic growth and “manageable inflation are in line with our expectations and validate current policy settings.”

However, some economists expect the central bank to raise the benchmark rate from the current 3.0% as early as next month to head off inflation, which has been creeping towards the upper end of the 2-4% target for 2017-2019.

“Further recent rises in world oil prices combined with robust GDP growth and rapid growth in consumer credit signal that the Bangko Sentral ng Pilipinas will have a tightening bias in its monetary policy stance,” said Rajiv Biswas, chief economist for Asia Pacific at IHS Markit.