MANILA, May 30: The Philippine economy posted better-than-expected growth in the January-March quarter, lifted by strong manufacturing and construction sectors, and cementing views the central bank will leave its key policy rate on hold for the rest of 2013.
With the Philippines facing export headwinds as global growth shows signs of an extended slowdown, analysts expect the central bank to tweak some policy levers to support domestic consumption.
Gross domestic product expanded a seasonally adjusted 2.2 percent in the first quarter over the prior three months, faster than the upwardly revised 1.9 percent in October-December, and above a market forecast of 1.6 percent.
The quarterly rate was the fastest since the first quarter of 2012, when it grew at the same pace.
From a year earlier, the economy grew 7.8 percent, helped by increases in public and private spending, making the Philippines the fastest growing economy in Asia as it nudged ahead of China’s growth of 7.7 percent on an annual basis and 1.6 percent quarter on quarter.
The Philippines’ annual GDP figure was also higher than 6.1 percent growth forecast in a Reuters poll.
The January-March data marked the third consecutive quarter of above 7 percent annual growth for the Southeast Asian country, with the yearly growth rate in the period the highest for any single quarter during the three-year-old Aquino administration, the economic planning agency said in a statement.
The export-reliant Philippines is facing some risk that demand for its high-tech products will slow on more evidence that global growth is losing momentum.
‘We remain vigilant of the downside risks, disasters can negate the gains and push back development. The global economy remains fragile,’ economic planning chief Arsenio Balisacan told reporters, adding capital inflows were also another risk.
Manila’s stellar growth performance in the first quarter reflects the region’s generally buoyant growth underpinned by a recovery in the global economy.
Markets’ reaction to the data was mixed. The peso was off early lows and was quoted at 42.35 per dollar at 0216 GMT from a low of around 42.515 in early deals. But the Philippine stock market was down around 1 percent.
MORE SDA RATE CUTS?
Economists said the central bank would most likely leave its key overnight borrowing rate on hold for the rest of the year, with inflation forecast to stay within the central bank’s 3 to 5 percent target band this year despite strong growth.
The central bank next meets to review policy on June 13. It has kept its policy rate steady at a record low of 3.5 percent since December 2012, but has slashed the rate on its special deposit account (SDA) facility by more than 200 basis points since July 2012 to divert credit to more productive use.
‘We think the BSP (Bangko Sentral ng Pilipinas) will continue to cut the SDA rate to lift domestic spending as well as save costs,’ said Trinh Nguyen, economist at HSBC in Hong Kong.
With the outlook on exports still murky, domestic consumption will remain as the main driver for economic growth this year. Manila is targeting growth of 6 percent to 7 percent in 2013 after a revised 6.8 percent expansion the prior year.
Domestic demand is seen holding up well in 2013, underpinned by strong remittances, low inflation and record-low borrowing costs.
Economists in the same poll forecast full-year 2013 growth of 6.2 percent, slower from the previous year but better than the 5.9 percent estimate in a Reuters quarterly poll in April.
(AGENCIES)
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