The Philippines delivers on growth

Stefan Wagstyl
August 30, 2012

The Philippines is keeping pace with its southeast Asian neighbours. Following robust second quarter GDP growth figures from Malaysia, Indonesia and Thailand, Manila on Thursday posted an increase of 5.9 per cent year-on-year for the three months to June – beating the 5.5 per cent consensus forecast.

It was slightly down on a revised 6.3 per cent for the first quarter but compares very well with the region’s front-runners. As elsewhere, strong domestic consumption led the way.

Barclays said in a note:

With strong growth of 6.1% in 1H 2012, we see some upside risks to our 2012 GDP growth forecast to 5.5%, but maintain the forecast for now. After the GDP data was released, Finance secretary [Cesar] Purisima indicated that consumption demand remains strong. Economic planning chief [Arsenio] Balisacan also said that growth may hit the top end of government’s 5-6% 2012 growth target, as government spending was supportive of growth momentum, despite external risks.

Barclays still expects the central bank to cut interest rates by 25 basis points to 3.5 per cent, probably in September, though the strong GDP figures may encourage it to stay its hand. So would some decline in the peso, following its recent strength. The currency has weakened since early July from 41.6 against the US$ to 42.2. But it has still strengthened by 3.87 per cent on the year, the fifth best-performing currency in emerging markets.

Capital Economics said:

We expect the [central bank] will keep rates on hold next month. However, with inflation at the lower end of the BSP’s 3-5% target range and the global economy set to depress exports, we have one more 25bp cut pencilled in before the end of the year.

So the central bank has a finely-balanced decision to make in the coming weeks on how best to support the country’s healthy growth rate. Its counterparts in the developed world will be wishing that they had such problems.

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