MANILA (Reuters) - The Philippine economy posted robust expansion in the second quarter, matching the pace of China as the two fastest growing in Asia, as strong fundamentals and domestic spending buttressed the country from the region's fund outflows.
The solid growth pace lifted the peso from nearly 3-year lows and would help the Philippines keep its favoured status among investors amid more market volatility.
The Philippines has overtaken emerging economies such as Indonesia as a safer investment bet due to prudent management of fiscal and monetary policy. It secured investment grade from ratings agencies this year.
The economy expanded an annual 7.5 percent in the second quarter, above the 7.3 percent market estimate, and compared with a revised 7.7 percent in the first three months of the year.
From the previous three months, the economy expanded 1.4 percent in the second quarter, higher than the 0.8 percent forecast in a Reuters poll. It was the slowest pace in a year and below the upwardly revised growth of 2.3 percent in the March quarter.
"The growth came mainly from consumer and public spending, buttressed by increased investments in fixed capital," Jose Ramon Albert, secretary general of the National Statistical Coordination Board, told reporters, adding that the services sector and manufacturing and construction also pushed up growth.
Socioeconomic Planning Secretary Arsenio Balisacan told a media briefing the economy was on course to outperform its GDP growth target this year of 6-7 percent. He also said the country's strong fundamentals would allow it to manage risks coming from market volatilities and global headwinds.
The Southeast Asian country has sustained annual growth of above 7 percent for four quarters in a row.
Like many of its neighbours in Southeast Asia, the Philippines has not been immune to the global downturn or fund outflows as the U.S. Federal Reserve starts winding down monetary stimulus.
The peso is down nearly 8 percent this year. Exports and imports fell more than 4 percent in the first half of the year.
But with a tenth of the Philippines' 97 million population abroad and sending an average $1.7 billion in remittances every month, domestic demand in the country has remained solid, helping cushion the economy from slumping trade.
Higher government expenditures and spending related to the mid-year elections in May also boosted domestic consumption, economists said, while manageable inflation allowed policymakers to keep interest rates at record low levels, supporting growth.
Public construction jumped 31 percent in the second quarter, lower than the previous quarter's 45.6 percent annual gain.
But the Philippines is expected to face growth risks in the second half.
"Government spending may slow post-election, with some concerns that the ongoing case on the abuse of a discretionary fund may curb state expenditure," said Bernard Aw, analyst at Forecast PTE Ltd in Singapore.
He added delays in public infrastructure projects could create more uncertainty that could affect investments, while recent fund outflows due to Fed tapering fears may potentially lead to destabilising capital flows in the economy.
Bangko Sentral ng Pilipinas Governor Amando Tetangco said the latest data should help boost investor confidence, and support the peso and the local stock market. He added that the authorities will ensure monetary policy would support non-inflationary robust growth.
The central bank next meets to review policy on September 12. It has kept its policy rate steady at a record low of 3.5 percent since December 2012, but has slashed the rate on its special deposit account (SDA) facility by more than 150 basis points this year to divert credit to more productive use.
(Additional reporting by Erik dela Cruz; Editing by Rosemarie Francisco and Jacqueline Wong)