Philippines economy expands above expectations in Q3, consumption and investment demand to grow further

The Philippines economy grew at the most rapid pace since 2013 in the September quarter. It expanded more than consensus expectations. The GDP grew 7.1 percent year-on-year in the third quarter. The Philippines economy is evidently on a strong footing to face financial market volatility, noted ANZ in a research report.

The Philippine domestic demand continues to be strong, in spite of the weak export outlook. The faster-than-anticipated growth was mainly driven by firmer performance of the manufacturing sector, which grew 6.9 percent year-on-year, as compared with the 6.2 percent year-on-year growth in the second quarter.

The growth in manufacturing sector was foreshadowed by the strength in recent industrial production figures, stated ANZ. Meanwhile, the agricultural sector also expanded a strong 2.9 percent year-on-year in the third quarter, reversing from the 2.1 percent contraction recorded in the second quarter.

Sustained firm fiscal spending is expected to continue to be supportive of the Philippine economic growth in the fourth quarter. The Duterte government proposes to raise the deficit to 3 percent of GDP from 2 percent in the upcoming 2017 budget. This is likely to further drive consumption and investment demand. Consumer spending is expected to continue to be up by increased remittance inflows.

“We are pencilling in GDP growth of 6.4 percent y/y in 2016 and 6.0 percent in 2017”, added ANZ.

The BSP is likely to be the first central bank in the region to tighten its policy tools by the third quarter of 2017, according to ANZ. The upcoming stimulation to the infrastructure spending would possibly keep domestic demand robust in the midst of changes in the external environment. In  the meantime, the Philippine central bank has additional time to facilitate the gradual migration of excess liquidity to its new term deposit facility, stated ANZ.