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Philippines May Extend Growth Slowdown as Global Demand Falters

Philippines May Extend Growth Slowdown
Inflation in the Philippines accelerated to a 26-month high of 5.2 percent in June before easing in July. Photographer: Noel Celis/AFP/Getty Images

Philippine economic growth probably slowed for a fourth straight quarter as government and consumer spending eased while faltering global demand hurt exports.

Gross domestic product increased 4.1 percent in the three months through June from a year earlier, according to the median estimate of seven economists surveyed by Bloomberg News ahead of an Aug. 31 report. The economy expanded 4.9 percent in the first quarter, the least since 2009. Philippine markets will be shut Aug. 29 and Aug. 30 for holidays.

Asia’s expansion is easing after the European debt crisis and a weakening U.S. recovery crimped demand for goods including Philippine-made Texas Instruments Inc. semiconductors, while rising food and energy prices curbed consumer spending. Stricter rules for state purchases and contracts have cut government outlays, undermining President Benigno Aquino’s pledge to boost growth to as much as 8 percent annually.

“When the regional and global economy loses momentum, even if it’s just a short-term speed bump, it’s hard to get around that,” said Matt Hildebrandt, a Singapore-based economist at JPMorgan Chase & Co. whose estimate for growth was the most pessimistic in the survey. “Fiscal policy added to the drag, on top of all the headwinds facing the public sector.”

Thailand’s growth unexpectedly slowed last quarter, a report showed this week, as the nation joined China, South Korea, Hong Kong, Malaysia, Singapore and Taiwan in reporting the slowest expansions since 2009.

Exports Drop

Philippine exports tumbled the most since September 2009 in June, with shipments abroad dropping 9.4 percent from a year earlier. Overseas sales account for about 30 percent of the $200 billion economy.

Asian stocks have fallen in the past month, with the MSCI Asia Pacific Index dropping in each of the four weeks ended Aug. 19 on concern risks to global growth are rising and hurting prospects for the region’s economies.

The Philippines’ benchmark three-year bond yields due July 2014 have fallen more than 1 percentage point this year, according to the Philippine Dealing & Exchange Corp., after the government took steps to narrow last year’s record deficit. The shortfall was 43.7 billion pesos ($1 billion) in the first seven-months of the year, compared with 229.4 billion pesos during the same period a year earlier, a report showed yesterday.

The peso surged to a three-year high and the Philippine Stock Exchange Index climbed to a record this month as Asia’s growth, which still outpaces that of developed economies in the U.S. and Europe, attracted funds seeking higher returns.

Inflation Pressure

The regional growth slowdown has reduced the scope for interest-rate increases even as inflation remains elevated.

Bangko Sentral ng Pilipinas ordered lenders to set aside more money as reserves for a second time this year in July to drain cash which it said may boost price gains. The central bank has paused after increasing the benchmark interest rate twice earlier this year to 4.5 percent.

Inflation in the Philippines accelerated to a 26-month high of 5.2 percent in June before easing in July. Rising prices are crimping profits at companies including Jollibee Foods Corp., the nation’s largest restaurant operator, and food company RFM Corp., which said last month it may miss its earnings target this year.

Remittances from the more than 8 million Filipinos living in countries including the U.S. and Saudi Arabia may help support domestic consumption, said Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc. The funds, which account for more than 10 percent of the economy, gained 6.3 percent in the first six months of the year to $9.6 billion.

“Remittances are more resilient to external shocks than exports, as overseas Filipino workers are increasingly employed in recession-proof industries such as health care,” Nguyen said. “Solid inflows have fueled the growth of the service sector.”

Philippine growth was probably 4.5 percent to 5.5 percent last quarter, Economic Planning Secretary Cayetano Paderanga said yesterday, citing a government forecast. The National Statistical Coordination Board will release the GDP data at 10 a.m. in Manila on Aug. 31.

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