PH economy grows slower than expected in Q3

Posted at 11/28/2011 12:15 PM | Updated as of 11/28/2011 6:36 PM

MANILA  (2ND UPDATE) - The Philippine economy expanded a seasonally adjusted 0.3% in the September quarter from the previous three months, weaker than expected, raising questions on whether the central bank will keep interest rates steady, as it recently indicated, at a policy meeting on Thursday.

The slower than expected growth in the third quarter prompted Socio-economic Planning Secretary Cayetano Paderanga to say that the Philippines will have difficulty hitting its full-year 2011 growth target of 4.5 to 5.5%.

 Paderanga told reporters a strong pick-up in public and private construction was needed in the fourth quarter to pull up full-year growth. 

Annual growth in the third quarter was 3.2%, the economic planning agency said on Monday, lower than the market forecast of 4.3%, and slowing from annual growth of 3.4% in the April to June period. 
 
Economists had forecast the Philippine economy would grow 1.3% in the September quarter from the previous quarter, faster than 0.6% in the June quarter, supported by strong domestic demand and services sector.  

From a year earlier, quarter growth was forecast at 4.3%, the midpoint of the government's 3.8 to 4.8% estimate.

'Uninvigorating gov't spending'

"The so called death spiral of debt that hounds our trading partners, the uninvigorating, albeit already expanded government spending, and the decline in fishing due to unfavorable weather and the high cost of fuel contributed to this relatively lethargic growth," said National Statistical Coordination Board secretary-general Romulo A. Virola, in a statement.

The services sector remained a bright spot for the economy, preventing a further slide in growth.

“The services sector, growing by 5.3%, was the main driver of the 3.2% growth recorded from June to September of this year. The agriculture sector continued growing with 1.8% expansion despite the typhoons that hit the country during the period," Finance Secretary Cesar Purisima said in a statement.

Consumer spending also contributed to growth but the construction sector suffered with the delayed implementation of the Public-Private Partnership program.

Purisima noted the government's accelerated spending plan has helped growth. "It is worth noting that growth in this sector of the economy has been on increasing trend for the past three quarters: -17.2% in the first quarter, 4.5% in the second quarter and now 9.4%. We expect this to further accelerate toward the end of the year as we take advantage of our wide fiscal space to enhance disbursements in order to shield the economy from the threats of present global uncertainties," he added.

Consumer spending also contributed to growth but the construction sector suffered with the delayed implementation of the Public-Private Partnership program.

Exports were also badly hit by the global crisis, causing a double-digit decline for the first time since the second quarter of 2009.

The second quarter GDP estimate was downwardly revised, which puts growth in the first 9 months of 2011 at 3.6%. Virola noted this is "quite a distance even from the lower end of the whole year target of 4.5%.

"It's really disappointing. This should compel both the monetary and fiscal authorities to come up with faster more effective policies to neutralise the weakening impact of slower exports," said Jun Neri of the Bank of the Philippine Islands.

George Worthington, chief economist Asia-Pacific IFR Markets in Sydney, said the Bangko Sentral ng Pilipinas may cut rates on Thursday.
 
"Slow growth, and the prospect for much weaker global growth in 2012, as well as the weakness in investment spending, may prompt the BSP to cut rates on Thursday as insurance, following Bank Indonesia's lead," he said.

The deteriorating global outlook saw the government cut growth forecasts for 2011 and 2012 last month to 4.5 and 5.5% and 5 to 6%, from 5 to 6% and 5.5 to 6.5% respectively.   

Last week, central bank deputy governor Diwa Guinigundo said monetary policy remained appropriate and indicators pointed to sustained growth in the fourth quarter, reinforcing market views that rates would be kept steady at its meeting on Thursday.

Analysts widely expect the central bank to leave interest rates unchanged at 4.5% for a fifth meeting in a row on Thursday, but a worsening global economic outlook will likely support the case for policy easing next year.