Philippines posts forecast-beating Q3 growth but risks remain

THE Philippine economy rebounded strongly in the third quarter, supported by a recovery in government spending, but higher interest rates and weak global growth could make it difficult to sustain the momentum.

Gross domestic product (GDP) grew by 5.9 per cent in the September quarter from last year, surpassing the 4.7 per cent forecast in a Reuters poll, helped by a turnaround in government spending offsetting a slowdown in household consumption.

Like many countries, the Philippines has been grappling with soaring inflation that has dampened demand and forced the central bank to aggressively raise interest rates at the expense of growth.

But the economic planning secretary, Arsenio Balisacan, was optimistic about the growth outlook, saying a 6 per cent to 7 per cent growth target set by the government was “still doable” and “within reach”.

To reach the lower end of the goal, Balisacan said the economy would have to grow 7.2 per cent in the current quarter, which he said was not impossible as long as the government sustained robust spending and inflation stays on a downward trend.

He added that inflation remained a challenge as it dampened household consumption, which grew at a slower pace of 5 per cent in the July to September period, the weakest in two years, from 5.5 per cent in Q2.

But government spending in Q3 grew 6.7 per cent, reversing the previous quarter’s annual decline of 0.7 per cent.

On a quarter-on-quarter basis, GDP expanded by 3.3 per cent, better than economists’ expectations of 2 per cent growth and the previous quarter’s 0.9 per cent contraction.

Following the Philippines’ faster-than-expected growth in Q3, Capital Economics revised its full-year growth forecast this year to 5 per cent from 4 per cent previously, but it did not share Baliscan’s optimism.

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“With the drag from higher interest rates yet to filter through the economy in its entirety, and global demand likely to weaken, we expect below-trend and below-consensus growth in the coming quarters,” it said in a note.

Annual inflation slowed for the first time in three months in October, to 4.9 per cent from 6.1 per cent the previous month, but with risks to the inflation outlook on the upside, the central bank has said it is ready to take further policy action to tame prices.

The central bank, which on Oct 26 delivered an off-cycle 25-basis-point interest-rate increase, will meet on Nov 16 to review policy. REUTERS