We slipped, but we still keep on going

Based on this article, despite setbacks the country has encountered, the economy expects to still have one of the fastest growth rates in the region.


  • The Wall Street Journal
  • Updated August 30, 2012

Philippine Growth Slips, But Beats Expectations


MANILA—The Philippine economy lost some steam in the second quarter but still emerged as one of the fastest-growing in Asia, a performance that could draw more money to its financial markets and force authorities to head off potential asset-price bubbles.


The archipelago’s economy grew in the April-June quarter at an annual pace of 5.9%, despite strong headwinds from the sputtering global recovery, Europe’s debt crisis and slower growth in China.

For the first half of the year, the economy grew 6.1%, the National Statistical Coordination Board said—above the government’s target range of 5% to 6%.

“We are optimistic that the resiliency of our economy, as reflected by the strong real GDP performance in the two quarters of 2012, will not dissipate in the succeeding quarters despite the uncertainties,” Economic Planning Secretary Arsenio Balisacan told reporters.

The reading failed to match the first-quarter’s pace, which was revised down to 6.3%. but it beat the 5.7% median expectation of 11 economists polled by Dow Jones Newswires. The growth numbers bolstered the peso, though the stock market seemed to focus more on the weak sequential figure—GDP rose just 0.2% quarter-on-quarter. Shares ended the day down slightly.

Still, the growth should be enough to attract further foreign investment, said Wick Veloso, HSBC’s managing director for the Philippines and head of the bank’s global banking and markets.

“That’s still a high number and one of the best growth numbers globally,” said Mr. Veloso, adding that he doesn’t see any signs of overheating.

“The key infrastructure projects are not even factored in yet,” he said, referring to the government’s flagship public-private partnership initiative.

President Benigno Aquino III‘s effort to improve governance and root out corruption has helped yield several-credit ratings upgrades, free up resources to fund infrastructure projects and attract strong capital inflows.

Those flows have buoyed the Philippine stock market—now up 18% for 2012, among the best showings in Asia—and pushed up the peso 3.6% against the U.S. dollar.

Bangko Sentral ng Pilipinas, the country’s central bank, has cut policy rates three times this year, most recently in July, and tightened some investment rules to temper peso appreciation. The BSP also has stepped up monitoring of banks’ real-estate exposure, seeking to close a potential window to asset-price inflation. It said Thursday’s growth data should further boost investor sentiment, bolstering demand for peso-denominated assets.

“BSP will review the stance of policy and calibrate any further action, taking into account, among others, the impact of further acceleration in government spending…weaknesses in global demand and possible further improvements in market sentiment toward peso assets,” Gov. Amando Tetangco asid in a statement.

Mr. Tetangco said the central bank has “sufficient room in our policy tool kit to address these factors to protect our inflation target.”

Inflation remains low enough—just 3.1% in the first seven months of the year, well within the BSP’s target rate of 3% to 5%—that Mr. Balisacan predicted the central bank won’t need to raise interest rates this year.

If anything, most analysts expect another rate cut.

Euben Paracuelles, an economist with Nomura, says the economy doesn’t need more easing—but he wouldn’t rule it out, saying the bank could cut the rate by 0.25 percentage point, mainly to limit capital inflows and the associated upward pressure on the peso.

Maybank also predicted one last cut of 0.25 percentage point, bringing overnight rates to fresh record lows of 3.5% for borrowing and 5.5% for lending.

“With the rate cut, BSP will also slightly mitigate some of the strong upward pressure on the peso,” the bank said in a research note.

But ANZ economist Aninda Mitra said the most recent cut represents “policy insurance against external headwinds,” and predicted the bank will stand pat.

“We don’t think the (GDP) numbers will drive any near-term shifts in monetary policy for the remainder of the year,” she said.

The economy drew support largely from government spending on construction—up 46% from a year earlier—and from robust domestic consumption, supported by a 5.3% increase in remittances from overseas Filipino workers. The slowdown from the first quarter was due mainly to disappointing agricultural output, which accounts for about one-fifth of the economy.

Mr. Balisacan said economic growth next quarter should come in at the higher end of the government’s target of 5% to 6%, despite floods earlier this month on the main island of Luzon. He estimated their impact as one-half of one percentage point.

Finance Secretary Cesar Purisima said the government has fiscal space to sustain public spending.

“We will continue to invest in the necessary infrastructure to boost investments, especially in agriculture, tourism, and business process outsourcing,” Mr. Purisima said in a statement. “We will continue to provide support to further the diversification of our exports.”

Write to Rhea Sandique-Carlos at rhea.sandique-carlos@dowjones.com and Cris Larano at cris.larano@dowjones.com

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