Philippine Q3 GDP expands slower than expected

MANILA: The Philippine economy grew slightly slower-than-expected in the third quarter but remains on track to be one of Asia’s fastest growing economies this year with domestic consumption and the country’s services sector staying strong.

The gross domestic product (GDP) data released yesterday supports views the central bank will keep its interest rates policy unchanged for now as growth holds up in the face of slowing global demand.

The economy grew 1.1% from the second quarter, below the 1.5% forecast in a Reuters poll, and slower than the June quarter’s 2.0%.

From a year earlier, third-quarter growth was 6.0%, picking up from an upwardly revised growth of 5.8% in the second quarter but weaker than a forecast 6.3%.

“This growth trajectory we are seeing will likely continue in the fourth quarter as we expect domestic demand to still pick up during the holiday season,” Economic Planning Secretary Arsenio Balisacan said in a media briefing, adding low inflation and the impact of election spending should support growth.

Strong domestic demand, underpinned by monthly remittances worth around $2 billion from overseas workers, and benign inflation, have kept Southeast Asia’s fifth largest economy relatively resilient to sputtering global demand.

That has allowed the Bangko Sentral ng Pilipinas (BSP) to keep its key policy rate steady at a near 1½-year low of 4.0%, where it has been since September 2014.

“They will probably retain a neutral stance in the December meeting, but we might see a less hawkish rhetoric from the BSP from hereon until probably we see the fourth quarter (GDP) print,” said Emilio Neri, chief economist at the Bank of the Philippine Islands.

Balisacan said risks to growth remain, particularly from a protracted El Nino weather pattern, and political uncertainty ahead of the country’s national election in May as investors hold expansion plans until after a new government is formed.

“The average growth this year is still likely to come in within the 6-6.5% government estimate,’’ he said.

If such expectations are met, growth would be higher than market forecasts of 5.7% and just behind the growth projections of Asian economic powerhouses China and India.

“The medium-term outlook is obviously dependent on the choice and performance of the next president. However, it would take a spell of very bad governance to undo the progress made under (President Benigno) Aquino, and we expect the economy to continue growing strongly,” said Daniel Martin, senior Asia economist at Capital Economics.

Main growth drivers in the third quarter were services, which climbed an annual 7.3% driven by transport, communication and real estate, and a 17.4% jump in government spending in the period against a year-ago decline of 2.5%.