Philippine Growth Unexpectedly Quickens on Spending
Philippine economic growth unexpectedly accelerated last quarter as business and consumer spending rose, capping the fastest annual expansion since the Marcos era.
Gross domestic product increased 7.1 percent from a year earlier after a revised 6.3 percent expansion in the third quarter, the National Statistical Coordination Board said in Manila today. That’s more than the 6 percent median estimate of 13 economists surveyed by Bloomberg News. The $161 billion economy grew 7.3 percent in 2010, the biggest gain since 1976, when the dictator Ferdinand Marcos was president.
President Benigno Aquino, whose mother Corazon’s People Power movement helped oust Marcos in 1986, is increasing government spending to a record this year to expand the economy by as much as 8 percent annually starting in 2011. The Philippines is faring better than neighbors from South Korea to Malaysia, where growth has eased amid a moderating Asian rebound.
“This is an extension of the optimism that has followed the new government,” said Radhika Rao, an economist at Forecast Pte in Singapore. “The central bank has managed to maintain benign inflation and that has contributed to better spending trends and positive consumption. Remittances haven’t taken a hit and these things contribute to strong domestic demand.”
The peso climbed to the highest in more than two years in November. The currency has fallen since then after the central bank eased rules on foreign-exchange outflows and capped dollar supply in the market by allowing currency swaps to mature, joining regional counterparts in seeking to slow excessive currency gains.
The peso dropped today, snapping four days of gains, as political turmoil in Egypt spurred investors to seek the relative safety of the dollar. Benchmark five-year bond yields surged the most in seven days.
Aquino, who took office in June, is asking investors to help build more than 700 billion pesos ($16 billion) worth of roads, schools and bridges in a nation where the World Bank estimates one out of four people live on less than $1.25 a day.
Still, growth in Asian economies is cooling after the region led a global recovery last year, as sovereign credit woes in Europe and unemployment exceeding 9 percent in the U.S. cap sales of the region’s goods, such as Philippine-made Calvin Klein Inc. underwear.
“Unless the government can carry out a more aggressive stimulus program and encourage the private sector to invest, it will be a big challenge to replicate the performance last year,” Emilio Neri, an economist at Bank of the Philippine Islands in Manila, said before the report.
Higher oil and food prices pose a risk and the global economy remains “fragile,” Economic Planning Secretary Cayetano Paderanga said today. The government may frontload spending to sustain growth, he said, without elaborating.
Asia’s policy makers are balancing the need to fight inflation against supporting growth, with South Korea and India raising interest rates this month while Indonesia and the Philippines have held rates steady for more than a year.
Aquino’s pledge to create jobs and cut poverty may be hampered as a rising peso cuts the value of remittances and damps demand for Ayala Land Inc. homes and Jollibee Foods Corp. chicken meals. A stronger currency also makes Philippine exports more expensive. Shipments abroad make up about 30 percent of the Philippine economy and growth in overseas sales eased to a 12- month low in November.
Aquino said last week he will give central bank Governor Amando Tetangco a new six-year mandate when his term ends in July, saying he has “confidence” in the governor. Tetangco has kept inflation below 5 percent in the past 21 months while holding the benchmark rate at a record low since July 2009. Policy makers next meet on Feb. 10 to decide on borrowing costs.
Bangko Sentral ng Pilipinas is watching inflation risks even as it expects consumer-price gains to remain within target, Tetangco said last week. Policy makers in December forecast inflation will average 3.6 percent this year, compared with their target of 3 percent to 5 percent.
“We still believe that the stance of monetary policy continues to be appropriate,” Tetangco said. “Our forecast shows that it is going to be well within the inflation target for this year and next year.”
The pace of economic growth is “not necessarily inflationary because the economy has expanded, its absorptive capacity has grown,” central bank Deputy Governor Diwa Guinigundo said today.
South Korea’s economic growth slowed last quarter as investment shrank the most in two years. The International Monetary Fund last week forecast growth in developing Asia will ease to 8.4 percent in 2011 from 9.3 percent last year.
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