Philippine economy slows to over 5-yr low, public spending scandal hurts

[MANILA] The Philippine economy posted its slowest growth in more than five years in the third quarter, hurt by a decline in public spending and backing views the central bank will hold rates for an extended period before resuming its tightening cycle.

Compared with the previous quarter, gross domestic product rose a seasonally adjusted 0.4 per cent in the September quarter, undershooting expectations of 1.4 per cent growth. It was the weakest pace of growth since the first quarter of 2009 when GDP contracted 2.4 per cent.

From a year earlier, the economy grew 5.3 per cent in the July-September period, well below the 6.6 per cent predicted by economists. "Relative to expectations, this is a big miss. It looks like the slowdown was led by the service sector. Manufacturing and construction seems to be holding up in line with what we are expecting," said Euben Paracuelles, economist at Nomura in Singapore. "There should be a rebound in Q4, although for the full year the risk is the government doesn't meet its target, even the low end of the range.

Manila has a growth target of 6.5-7.5 per cent this year.

Growth for January to September averaged 5.8 per cent, the government said on Thursday.

The Philippine peso and the stock market turned down on the disappointing data.

A July ruling by the Supreme Court declaring parts of an economic stimulus fund illegal "is putting a chilling effect in the bureaucracy," Economic Planning Secretary Arsenio Balisacan said, adding the scrapping of the fund could have contributed to slower state spending.

The controversy has slowed spending because officials are subjecting decisions to more scrutiny, putting big infrastructure projects at risk.

A slower quarter-on-quarter growth and cooling inflation make it almost certain the central bank will leave interest rates on hold for a second straight month in December before resuming its tightening cycle next year.

Some analysts expect the central bank to resume raising interest rates as early as in the first quarter of 2015 to prepare for an eventual policy normalisation by the US Federal Reserve.

Inflation has averaged an annual 4.3 per cent in the 10 months to October, within the central bank's 3-5 per cent target.

The Philippine peso turned weaker after the GDP data release, with the currency now quoted at 44.955 per dollar from its Wednesday close of 44.92.

The stock market was 0.76 per cent lower in early trades.


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