Philippine Q2 growth likely to be solid
MANILA - Philippine second quarter growth will likely be solid, affirming its favored status among investors due to strong fundamentals at a time when the region is fighting off capital outflows.
Growth on an annual basis is expected to have stayed above 7 percent for a fourth straight quarter, a Reuters poll of economists showed, although momentum probably slowed to 0.8 percent from the previous quarter.
A 7.3 percent annual expansion in April-June, as forecast, will keep it among the fastest-growing economies in Asia alongside China and make it the envy of neighbours Indonesia, Malaysia and Thailand.
"We believe that the Philippines offers the best macroeconomic prospects out of the ASEAN4 countries," said Michael Wan, economist at Credit Suisse in Singapore, referring to the Philippines, Indonesia, Thailand and Malaysia.
Thailand's economy slipped into a recession in the second quarter amid weakness in exports, domestic consumption and investment, while Indonesia posted its slowest annual expansion in nearly three years in the April-June quarter.
Malaysia accelerated slightly in the June quarter but growth was below expectations and a sharp fall in the current account surplus heightened fears it could be vulnerable to market turmoil.
The Philippines has not been immune to the global downturn or fund outflows as the U.S. Federal Reserve starts winding down monetary stimulus. The peso is down nearly 8 percent this year. Exports and imports fell more than 4 percent in the first half of the year, but strong domestic demand and higher state spending probably compensated for weak trade.
Powering that robust private consumption, which accounts for more than 70 percent of the economy, is money sent home by around 10 million Filipinos abroad, and these inflows have stayed resilient in the face of the global downturn.
A double-digit rise in government expenditures and spending related to the mid-term elections in May may have also boosted domestic consumption in the second quarter, analysts said.
The Philippines, once known as the "sick man of Asia" was the only country among the five big economies of Southeast Asia whose growth forecast was upgraded by the International Monetary Fund this year.
And just last month, Moody's Investors Service placed its rating on the Philippines on review for an upgrade, raising the possibility the country could soon win its third investment grade rating after Fitch and Standard & Poor's delivered the first and second in March and May.
Foreign exchange remittance inflows - which hit a record $21.4 billion in 2012 and are forecast to grow 5 percent this year - coupled with exports from the burgeoning business process outsourcing sector, have helped keep the country's current account in a surplus despite weak trade.
"The recent sell-off in emerging market assets has hit the Philippines as well, but on the whole the economy is well-placed to withstand a period of moderate portfolio inflows," said Eugene Leow, economist at DBS in Singapore.
"With inflows buttressed by stable remittances, the current account remains firmly projected to remain in surplus position even if export performance stays subpar," Leow said.
Economists in the same poll forecast the economy would likely expand 7 percent this year, matching the top end of the government's growth target for 2013.
Despite strong growth, inflation has remained benign in the Philippines, and it would likely stay under control this year and next year, the central bank has said, allowing it to continue supporting growth by keeping interest rates at record low levels.
Annual inflation unexpectedly slowed in July to its lowest in nearly four years, bringing the seven-month average inflation to 2.9 percent, slightly below the central bank's 2013 target of 3-5 percent.
"When the dust settles after all of this uncertainty arising from the market second guessing what the Fed will do, investors will focus again on the fundamentals. When that happens, the Philippines will benefit from that," Bangko Sentral ng Pilpinas Governor Amando Tetangco said.