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Philippine growth story to continue in first quarter on strong exports, government spending
May 17, 2017 / 6:01 AM / 7 months ago

Philippine growth story to continue in first quarter on strong exports, government spending

MANILA (Reuters) - The Philippine economy likely sustained its strong growth momentum in the first quarter on recovering farm output and exports and higher government spending, supporting the case for the central bank to tighten monetary policy this year.

Motorists are pictured behind a glass during rush hours along Ayala Avenue in Manila's financial district Makati, Metro Manila, Philippines June 21, 2016. REUTERS/Erik De Castro

The consumption-led economy likely expanded 1.5 percent in the first quarter from the previous three months. While slightly slower than the 1.7 percent expansion in the December quarter, the expected pace would be one of the fastest in the region.

Economists polled by Reuters expect gross domestic product grew 6.8 percent in the March quarter from a year earlier, faster than the 6.6 percent growth in the fourth quarter.

The Philippines has long left behind its reputation as a regional laggard, with remittances and business process outsourcing revenue helping to fuel retail spending and maintain a level of growth that is enviable by Western standards.

A brisk pace of growth in the first three months will likely steer the central bank to raise interest rates this year. It last raised rates by 25 basis points in September 2014.

“The growth-inflation dynamics still suggest that policy tightening remains in the offing,” Gundy Cahyadi, economist at DBS in Singapore said. “The underlying growth momentum remains strong, driven by the government’s infrastructure overhaul.”

Some economists have penciled in as much as a 50-basis-point increase in interest rates in the second half, when the new central bank governor will have assumed office.

Philippine President Rodrigo Duterte has embarked on a multi-million dollar infrastructure program to lift economic growth, attract much-need foreign direct investments and spread wealth more broadly.

From 5.2 percent of GDP this year, infrastructure spending is projected to rise to 7 percent by the end of Duterte’s six-year term in 2022.

A slew of indicators also points to strong economic activity in the first quarter, although the previous year’s pre-election spending may take some steam out of 2017 year-on-year figures.

Government spending was 4 percent higher in the first quarter from the previous year, while remittances, a key driver of economic growth, hit a record of $2.62 billion in March.

Farm output, comprising around a tenth of GDP, rose 5.28 percent in the March quarter, its fastest annual pace in at least three years.

Double-digit increases in the imports of iron and steel, machinery and equipment, also suggested the economy ended the first quarter on a solid footing.

Economic Planning Secretary Ernesto Pernia told Reuters in January he expected annual growth in the first quarter to be between 6.5-7.0 percent, or even higher, as the government committed to ramp up infrastructure spending.

Full-year growth could reach 6.9 percent this year, according to the World Bank, well inside the Philippine government’s 6.5-7.5 percent target.

Editing by Jacqueline Wong

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