Philippine Growth at 3-Year Low on Failure to Speed Up Spending

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Philippine President Benigno Aquino
Benigno Aquino, the Philippines' president. Photographer: Veejay Villafranca/Bloomberg

Philippine economic growth slid to a three-year low last quarter as exports and government spending faltered, putting at risk President Benigno Aquino’s goal of faster expansion. Stocks slumped.

Gross domestic product increased 5.2 percent in the three months through March from a year earlier, the Philippine Statistics Authority said in Manila Thursday. That is lower than all but one estimate in a Bloomberg survey whose median was 6.6 percent.

With about a year left in office, Aquino faces the challenge of bolstering state spending to shield the economy from an uneven global recovery that’s hurt Asian exports. Economic Planning Secretary Arsenio Balisacan said today he expects budget disbursement will pick up in the remainder of the year, and that growth prospects for 2015 are still good.

“It’s the same picture we saw last year where government spending was weak before picking up,” said Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd. “It’s been very volatile and is not a good sign. Looks like the government target of 7 percent to 8 percent growth this year is off the table now.”

The peso erased gains after the report, and was little changed at 44.68 per U.S. dollar as of 12:44 p.m. local time. The Philippine Stock Exchange index fell 1.6 percent to a four-month low.

Dry Spell

First-quarter GDP growth is the slowest since the three months through December 2011, according to data compiled by Bloomberg based on previous figures. The economy expanded 0.3 percent from the previous quarter, compared with a median estimate of 1.4 percent.

Bangko Sentral ng Pilipinas held its benchmark rate at 4 percent this month. Weaker growth is unlikely to spur rate cuts, Daniel Martin, an economist at Capital Economics Asia Pte in Singapore, wrote in a note after the report.

The central bank earlier this month raised its inflation forecast for this year and next, citing the El Nino weather pattern. More than half the country’s provinces are suffering from a dry spell.

State spending rose 4.8 percent last quarter from a year earlier, about half the pace in the previous three months, and about 13 percent below target. Exports gained 1 percent, the slowest pace in seven quarters.

Public spending also fell in the three months through September last year, dragging growth to a slower-than-estimated 5.5 percent. Strong remittances, falling oil prices, and upbeat consumer and business sentiment indicate stronger growth in 2015, while expansion next year will be supported by election-related spending, the World Bank said last month.

“I would be biased to look past this weakness,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore. “The macrofundamentals are intact and Philippines compares more favorably” to other Southeast Asian countries.

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