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Weak exports, spending drag Philippine Q1 growth to 6-year low

[MANILA] Philippine economic growth unexpectedly slowed to a six-year low in the first quarter, but the central bank said it would not ease policy as consumer and public spending were set to pick up.

Still, economists doubted Manila's 7-8 per cent growth target for the full year could be met without additional interest rate cuts or a sharp increase in fiscal spending, which has been slowed by a corruption scandal and bureaucracy. "It is very disappointing. This may trigger speculation that the Bangko Sentral ng Pilipinas (BSP) will consider easing policy rates in the June policy meeting, more so that inflation (data) for May and June are expected to be some of the lowest this year," said Emilio Neri, economist at the Bank of the Philippine Islands.

He added that growth in the second quarter was unlikely to be strong as the worst of the El Nino dry weather phenomenon affects agricultural production.

First quarter GDP slowed to a seasonally adjusted 0.3 per cent in the January-March quarter from 2.5 per cent in the fourth quarter, the weakest in six years, the statistics agency said. A Reuters poll had forecast 1.4 per cent growth.

Southeast Asia's fifth-largest economy has so far bucked the global trend of policy easing due to solid economic growth. The Philippines remains one of the fastest-growing in the region, and its improved fiscal position and governance has also led to ratings upgrades, making it a standout with investors.

The government, however, has failed to roll out planned state spending but government officials say spending will pick up ahead of next year's presidential polls.

From a year earlier, the economy grew 5.2 per cent in the first quarter, below the 6.6 per cent predicted by economists and the slowest in more than three years.

Government final consumption spending rose 4.8 per cent, down from 9.4 per cent in the fourth quarter. But private spending remained strong, with household consumption climbing 5.4 per cent, higher than 5.0 per cent in the fourth quarter.

Growth in manufacturing was 5.9 per cent, lower than the previous quarter's 7.7 per cent, as exports grew only 1 per cent against 12.8 per cent in the previous quarter.

The weakness in exports was expected with the global economy hitting a soft patch early in the year, said Daniel Martin, senior Asia economist at Capital Economics, adding exports should rebound.

Despite the lacklustre performance, Economic Planning Secretary Arsenio Balisacan told a news conference the government was not abandoning this year's 7-8 per cent growth goal as rice imports would also offset the impact of El Nino.

The peso eased against the US dollar after the data while the main stock index fell 1.6 per cent.

The central bank said liquidity in the economy was sufficient and domestic credit conditions support growth. "I don't see compelling need to provide additional monetary stimulus," said central bank Deputy Governor Diwa Guinigundo.