Philippine economic growth accelerates at a surprisingly stronger pace in Q1

The Philippines’ economic growth accelerated at the highest quarterly rate in nearly three years in the first quarter of 2016. The economy expanded 6.9% y/y, on par with market expectations. The first quarter economic growth came in above the upwardly revised growth of 6.5% y/y recorded in Q4 2015. The overall growth of Philippines was weighed on by contraction in agriculture of 4.4%. In Q1 2016, services and industrial production grew 7.9% y/y and 8.7% y/y respectively. Meanwhile, consumer spending continued to grow above trend at 7% y/y.

According to a recent statement by Philippines’ Finance Secretary Cesar V. Purisima, capital formation, which grew 23.7%, particularly fixed capital formation growth of 25.5%, helped drive the first quarter economic growth. This suggests investor confidence is rising. Furthermore, consumer sentiment continues to be strong. Household consumption climbed 7%, sustained by stable and low prices and record jobless rate of 5.8% in the January Labor Force Survey, stated Purisima. Meanwhile, government consumption growth expanded 9.9%.

The Philippine economy is likely to expand 6.1% y/y this year as growth is expected to slowdown in the second half of 2016, noted ANZ in a research report. But election-related spending is expected to aid the growth in second quarter. Even though President Aquino is likely to transfer the government’s reins to presumptive President-elect Duterte at the end of June, the economic momentum is unlikely to experience any considerable change through the end of 2016, added ANZ.

Meanwhile, the Philippines’ central bank is likely to maintain its interest rates stable at least until late Q4 2016, said ANZ. On 3 June, the official transition to the Interest Rate Corridor framework will begin.

“We expect the volume of the Term Deposit Auction Facility (TDF) to be small, while the bulk of the central bank’s liquidity absorption will momentarily remain at the overnight deposit facility (SDA) at 2.50%. Over time, we expect the volume of TDF to rise as funds shift out of the SDA window, giving space for the central bank to adjust its reserve requirement ratio (currently at 20%)”, stated ANZ.