Philippine economy to regain momentum in Q4

By Karen Lema, Reuters

Posted at Jan 28 2015 01:19 PM | Updated as of Jan 29 2015 02:43 AM

MANILA - The Philippine economy likely finished 2014 strong with growth in the last quarter expected to have regained momentum, putting it on course for another year of solid growth that will allow the central bank to leave policy rates on hold in the near term.

Buoyant consumer demand, strong exports and a recovery in farm output probably helped offset a pull-back in government investment, which had been a big drag on the economy last year and is expected to remain a key risk in 2015.

Economists polled by Reuters expect the data on Thursday to show that gross domestic product rose a seasonally adjusted 1.7 percent in October-December from the previous quarter, faster than the 0.4 percent quarter-on-quarter growth in July-September, which was a more than five-year low.

On an annual basis, the economy probably grew 6.0 percent after expanding 5.3 percent in the September quarter. Growth in the second quarter was 6.4 percent and 5.6 percent in the first quarter.

"A fall in agricultural production and a decline in government spending dragged third quarter GDP growth...These factors should be transitory, and we expect economic growth to rebound in the fourth quarter report," Moody's Analytics said in a research note.

An increase in the production of crops, livestock and poultry sub-sectors in the fourth quarter, helped push 2014 farm output growth to 1.83 percent, faster than the 1.12 percent uptick in 2013.

Exports in the 11 months to November rose 10 percent from a year earlier, supported by shipments of electronics parts which have been benefitting from improving global demand.

For all of 2014, the same poll forecast growth of 5.8 percent, below the government's 6.5-7.5 percent target and the weakest since 2011, but enough to keep the Philippines in the list of Asia's fastest-growing economies.

Analysts' estimates ranged from annual rises of 5.5 percent to 6.8 percent for 2014.

Bangko Sentral ng Pilipinas Governor Amando Tetangco has said there was no reason to change its monetary policy stance at the moment but authorities stood ready to keep financial volatility in check.

Analysts expect the central bank to keep the benchmark interest rate steady at 4.0 percent in the first half. The central bank meets for the first time this year on Feb. 12.

The consensus in the same Reuters poll was for GDP to expand at a faster clip of 6.5 percent in 2015, but much of the growth this year will depend on the government's ability to spend its 2.6 trillion peso national budget.

State spending has slowed for most of 2014 after aspects of a 145 billion peso ($3.34 billion) economic stimulus fund the Aquino government created from budget savings were declared illegal by the Supreme Court in July.

That has made public officials more wary about accusations of recklessness and have submitted spending decisions to more scrutiny, putting at risk big infrastructure projects.

"We are still flagging the risk of public under spending spilling over 2015 and remaining a dampener on an otherwise robust growth outlook," said Eugenia Victorino, economist at ANZ in Singapore.

Manila has a 7-8 percent growth goal in 2015.