Philippines' GDP growth seen picking up slightly in Q3


Posted at Nov 21 2012 06:50 PM | Updated as of Nov 22 2012 05:35 PM

MANILA - Philippine economic growth likely defied the global downdraft  and picked up modestly in the third quarter, helped by strong domestic demand and a late spurt in exports, but a December rate cut may still be on the cards to contain the peso's strength.  

The median forecast of 0.4 percent seasonally adjusted quarter-on-quarter growth in a Reuters poll is slightly higher than the previous quarter's 0.2 percent expansion, but weaker than the 3.0 percent pace seen in the Jan-March quarter.

From a year earlier, the economy may have expanded 5.4 percent. Although slower from the second quarter's annual climb of 5.9 percent, the pace is enough to keep the Philippines in the ranks of the fastest-growing economies the world.

"Growth is expected to remain strong, buoyed by domestic demand and strong overall export performance in the third quarter. This is despite the output loss caused by floods in August," said Vaninder Singh, economist at RBS in Singapore.     

On a year-on-year basis, economists' growth forecast for the Philippines is better than Malaysia's actual 5.2 percent expansion and Thailand's 3.0 percent, and not far behind China's 7.4 percent and Indonesia's 6.2 percent growth.   

Manila is targeting a faster growth of 5 to 6 percent this year compared with 3.9 percent in 2011, banking on strong domestic demand and higher government spending to offset weak global demand for the country's exports.

Domestic consumption, which powers 70 percent of economic activity, likely stayed robust, fueled by remittances from Filipinos working overseas. Those inflows averaged more than $1.8 billion in the third quarter, helping offset soft external demand.     

Exports, which account for about two-fifths of GDP, rebounded sharply in September from a year earlier but sluggish global demand will probably keep the outlook murky well into 2013.  

"Although the economy faces challenges such as slowing external demand, record low interest rates should keep growth momentum going into the first half of 2013," said Jeff Ng, economist at Standard Chartered bank in Singapore.

While a relatively resilient performance in the third quarter would argue against a December rate cut, some economists such as Jun Neri at Bank of the Philippines said the central bank may ease policy further to temper the peso's rise.  

The peso is Asia's best performing currency so far this year, up nearly 7 percent against the U.S. dollar on strong foreign inflows into Philippine stocks and bonds, fueled by forecasts of sustained strong domestic growth.

A recent Reuters poll showed further gains in the currency were expected.    

With the inflation outlook benign, the central bank has room to either keep policy rates steady, or cut them, if needed to support growth and manage strong capital inflows. Policymakers meet for the last time this year on Dec. 13.

The key overnight borrowing rate is at a record low of 3.5 percent after a combined 100 basis point cut so far in 2012.

Inflation eased more than expected in October to 3.1 percent from a year earlier, a four-month low.