Philippine 2015 growth seen among strongest in Asia, wards off global chill

by Reuters
Wednesday, 27 January 2016 21:00 GMT

By Karen Lema

MANILA, Jan 28 (Reuters) - Growth in the Philippine economy likely picked up sharply late in 2015 as strong domestic demand and government spending cushioned the impact of weaker exports which are hurting many of its larger, trade-reliant Asian neighbours.

Even the severe El Nino dry spell, which pulled down fourth-quarter farm output, likely failed to dampen the country's momentum much.

Fourth-quarter data on Thursday is expected to show the Philippine economy expanded 2.2 percent in October-December from the previous quarter, twice as fast as in July-September, according to a Reuters poll.

The forecast, which would eclipse China's quarterly expansion of 1.6 percent, appears to support the central bank's conviction that Southeast Asia's fifth-largest economy does not need additional stimulus at the moment.

"The significant cushion of private consumption, accounting for almost 70 percent of GDP, will insulate the country from the slowdown emanating from much of the emerging markets," ANZ economist Eugenia Victorino wrote in a note.

Nearly $40 billion worth of inflows from business outsourcing contracts and millions of Filipinos working overseas flood into the Philippines every year, lifting incomes and spurring demand for property, cars and other consumer goods and services.

The 4.5 percent slide in the value of the peso against the dollar last year also boosted the purchasing power of the funds sent home by overseas Filipinos.

Real estate loans were at a record 1.23 trillion Philippine pesos ($25.69 billion) at end-September last year, central bank date showed, while car sales hit an all-time high in 2015.

"While a number of central banks have eased their policy settings to stimulate domestic economic activity amid a benign inflation environment, we in the Philippines don't see the need to provide further stimulus to the economy at the moment," central bank Governor Amando Tetangco told Reuters in an interview on Wednesday.

From a year earlier, fourth-quarter growth was forecast at 5.9 percent, slightly slower than the September quarter.

For the full-year 2015, economists predicted growth of 5.7 percent, still enviable by Western standards but its weakest since 2011 when the economy grew 3.7 percent. That would compare with China's 6.9 percent and Vietnam's 6.7 percent.

Manila had a 7-8 percent target for 2015.

Tetangco said there was ample liquidity in the system to support the economy's needs, and the government has fiscal space to build and improve the country's infrastructure.

Growth should also get additional support from a burst of campaign spending ahead of the election of a new president on May 9, Tetangco said, supporting the case for steady interest rates.

Under outgoing President Benigno Aquino's watch, the economy grew an average of 6.3 percent annually, the best 5-year record in four decades, helping cut the jobless rate to a record low of 5.6 percent in October 2015.

His efforts to collect more revenue by intensifying a campaign against tax evasion and corruption, as well as prioritising infrastructure, helped win the country investment grade ratings from major credit agencies.

Tetangco assured investors that structural reforms set in place by Aquino will not be easily reversed as they have been institutionalised through laws and regulations.

The Philippines has not been totally immune to capital outflows being seen by many emerging markets, triggered by expectations of higher U.S. interest rates, concerns over China's slowing economy and plummeting oil prices. But analysts say its robust growth, strong current account and adequate forex reserves have differentiated it from its regional peers.

(Reporting by Karen Lema; Editing by Kim Coghill)

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