Philippine economy seen stronger in Q2

Posted at 08/26/14 2:18 PM

MANILA (UPDATE) - The Philippine economy may have gained momentum in the second quarter after a slow start to the year, raising the chances of more monetary policy tightening as inflationary pressures mount.

The export-reliant economy has gained economic traction in recent months due to robust domestic demand as well as a recovery in global growth. Its factories that produce parts in the global tech supply chain are also reaping from launches of new mobile phones and tablets such as from Apple Inc.

Southeast Asia's fifth-largest economy likely grew 2.0 percent in April-June, the fastest quarterly pace in over a year, a Reuters poll showed, as strong factory output and exports, plus a pick-up in state spending helped drive growth.

On an annual basis, the economy probably grew 6.2 percent, after it unexpectedly slowed to 5.7 percent in January-March dampened by the impact of a super typhoon late last year.

The forecast, if correct, will make the Philippines the third-fastest growing economy in Asia for the second quarter so far, after China and Malaysia.

"Macro numbers, like exports, remittances, industrial production for the second quarter are showing a rebound so it is possible to see a 7 percent upside surprise," said Patrick Ella, economist at Security Bank in Manila.

Exports grew for a fifth straight month in June with the growth rate the fastest in six months.

Manufacturing output continued its double-digit climb in June - adding to signs the economy is slowly diversifying, fuelled increasingly by industrial sector activity.

Growth in the June quarter may also have been supported by a 44 percent annual increase in government spending in June after annual declines in expenditure in April and May.

But policy paralysis that has not moved government plans forward in sectors such as the auto industry, could cause multinationals to shift production out of the Philippines and hurt future investment, industry executives say.

A daytime truck ban to alleviate traffic congestion has also hit businesses in Manila, slowing the transportation of goods at the country's two major ports which could affect growth.

Second quarter GDP data is due to be released on Aug. 28 at 0200 GMT.


A strong second quarter showing will likely boost expectations the central bank will continue to tighten monetary policy to curb price pressures from higher food and fuel costs.

Inflation has averaged 4.3 percent in the seven months to July, above the midpoint of the central bank's 3-5 percent goal this year and outside next year's 2-4 percent inflation target.

"In all, we remain optimistic on the Philippines growth this year and next," said Jeff Ng, economist at Standard Chartered Bank in Singapore. "We see a further tightening bias in monetary policy ahead, and expect a 25 bps hike in the policy and special deposit account rates by end of the year."

In July, the Philippine central bank raised its main interest rate by 25 basis points to 3.75 percent, the first hike in three years, to tame price pressures. It said its inflation target for next year was at risk, fuelling expectations of further tightening ahead.

The central bank next meets to review policy on Sept. 11.

Economists in the same poll forecast growth will reach 6.3 percent this year, below the government's 6.5-7.5 percent target and the World Bank's 6.4 percent estimate, but better than the International Monetary Fund's 6.2 percent 2014 growth outlook.