Economy soars 7.1% in Q3

MANILA, Philippines - The Philippine economy  moved the fastest in Southeast Asia in the third quarter at 7.1 percent from a year earlier, coming just a little behind China’s growth and surpassing projections.

“This was possible due to sustained confidence in the leadership of President Aquino and his administration, which has consistently equated good governance with good economics,” presidential spokesman Edwin Lacierda said yesterday, referring to the record growth.

“Government has pushed to ensure this economic growth is felt by the broadest number of people,” he added.

With the robust third quarter growth, Socio-Economic Planning Secretary Arsenio Balisacan said the country might even breach its full-year target of between five and six percent.

“Once more, the third-quarter performance was way above the market’s median of 5.4 percent,” Balisacan said. “Moreover, we posted the fastest economic growth within the ASEAN,” referring to the ten-member Association of Southeast Asian Nations.

In the same period, Indonesia posted 6.2 percent growth; Malaysia, 5.2 percent; Thailand, three percent; and Singapore, 0.3 percent. China’s growth was 7.4 percent.

“Both private and public construction registered more than 20-percent growth rates during the same period,” Balisacan, director general of the National Economic and Development Authority, said.

A sharp jump in third-quarter farm output and a late rebound in exports also contributed to the economy’s 1.3 percent growth rate in the July-September quarter from April-June, which was three times as fast as economists had predicted.

Like many of its Southeast Asian neighbors, robust domestic consumption and higher government spending have helped cushion the Philippine economy from the worst of the global slowdown, while manageable inflation has allowed Philippine authorities to keep interest rates in sync with growth.

“We will face the fourth quarter not only with utmost optimism but also with careful vigilance,” Balisacan said, citing the country’s need for foreign funding assistance or loans for infrastructure projects, including those falling under the public-private partnership (PPP) program.

The entry of more foreign funds is likely to temper the strengthening of the peso.

‘Aquinomics works’

Finance Secretary Cesar Purisima said the glowing third quarter figure proved “that economics of good governance or Aquinomics works” and that “investor and consumer confidence in the Philippines is definitely on an upward momentum.”

“This brings growth for the first three quarters of 2012 to 6.5 percent, driven by sustained government and private sector construction and consumption. This is the ultimate public-private sector partnership. Government takes care of fiscal sustainability, macroeconomic stability and continued business facilitation, while the private sector responds with more investment and consumption,” Purisima said in a statement.

“This economic performance is significant for several reasons. One, it is much higher than the trend growth of 4.7 percent in the past 10 years. Two, it was accomplished in a very difficult global economic environment. And three, it happened despite a 2.2 percent decline in mining, which shows that mining represents an extra gear for the Philippine economy once the regulatory environment is rationalized,” he added.

“The peace agreement once completed and fully implemented represents another extra gear that will unlock the significant potential of Mindanao,” he pointed out.

“We will continue to focus on the fundamentals of Aquinomics to make sure that we are able to achieve our growth aspirations,” he said.

At Malacañang, Lacierda said the government has spent P20 billion since January this year for its conditional cash transfer program, which has benefited “more than three million people.”

He said public health spending also surged, “resulting in an expansion of health care safety nets and improvements in hospitals and health centers.”

For his part, Budget Secretary Florencio Abad said it was notable that the Philippines has achieved such growth despite the global economic slowdown, which has affected even the United States and Europe.

“Over the last 10 months, the Philippines has demonstrated extraordinary fiscal strength, even in the face of a bleak global economy,” Abad said in a statement.

“All in all, we’re looking at very fruitful times ahead. With inflation kept down and an interest regime that stays low – not to mention increased public confidence in our anti-corruption and reform-oriented governance platform – we foresee the country’s risk profile to improve considerably,” he said.

“We’ve seen our GDP (gross domestic product) growth climb at an impressive rate in the first two quarters, and our goal has always been to sustain this high fiscal momentum through vigorous public spending, sound macroeconomic policies, and good governance reforms,” he added.

“Our 7.1-percent GDP growth in the third quarter, however, surpasses not only the momentum we set since the beginning of the year, but also our own expectations on our fiscal performance,” he pointed out.

“In an environment where external demand is weak, local demand continues to spike because of consistently high public expenditure.

“Public construction grew by a strong 23.7 percent in the same quarter. Private construction also soared by 25 percent during the period, due largely to the private sector’s heightened confidence in the administration’s economic and governance measures.

“We are, in other words, creating an environment that’s ripe for both local and foreign investments and stable enough to keep our fiscal performance at a reasonable high,” he said.

“We are optimistic that our fourth-quarter growth will remain as energetic. Public consumption will most definitely stay robust, fueled by high consumption levels during the holidays, continuing investments in public and private infrastructure, and the kick-start of election-related spending this Christmas season,” he added.

Fantastic year

For banking giant HSBC, the third quarter results showed that the Philippines was having “a fantastic year.”

“This is largely due to the fact that policy makers took timely measures to counterbalance an anticipated slowdown of demand from China and the eurozone as well as the resilient nature of the services-oriented economy,” said HSBC economist Trinh Nguyen.

He added that robust domestic demand has also energized the real estate sector, resulting in a 24.8-percent expansion of construction investment.

“Exports also proved to be very strong in stark contrast to the region’s weak shipment in the third quarter. Both exports of goods and of services rose 6.7 percent year-on-year and 7.6 percent, respectively,” Trinh added.

The Philippines has set a record infrastructure budget of over P400 billion next year as it pursues major upgrades of roads, ports, bridges, and airports to speed up growth and boost private investment.

The Philippines is the only economy in the world which the International Monetary Fund (IMF) believes will grow faster than earlier anticipated this year.

The IMF earlier this month raised its 2012 growth outlook for the country to more than five percent from its October forecast of 4.8 percent, citing its sound fiscal and monetary policies.

“The Philippines is the diamond of the region this year,” said Enrico Tanuwidjaja, economist for Southeast Asia at RBS in Singapore.

To cushion the economy from the global downdraft, the Bangko Sentral ng Pilipinas (BSP) has cut its key policy rate by a total of 100 basis points so far this year to a record low of 3.5 percent.

Last week, the BSP released data showing businesses were more confident in the fourth quarter than in the third, given expectations of an increase in business activity and demand, low inflation and interest rates, and favorable macroeconomic conditions.

BSP Gov. Amando Tetangco said its current stance was appropriate for now, but added authorities would carefully steer policy to sustain strong growth and manage risks from capital inflows.

Policymakers meet for the last time this year on Dec. 13 and analysts expect the policy rate to be kept steady well into 2013.

“We have probably already seen the bottom of the rate-cut cycle. Our call is still neutral until probably June 2013,” RBS’ Taniwudjaja said.

“If the reforms continue, especially in revenue collections and efficiency in public spending, this will continue to support growth next year,” he said.

However, the continued rise of the peso against the dollar may warrant policy action.

The BSP had said it was reviewing foreign exchange liberalization measures to counter the rapid appreciation of the peso, which is Asia’s best performing currency this year.

Balisacan said upward pressures on the peso should ease next year as major infrastructure projects under the PPP (public-private partnership) scheme get underway and as the DOF continues to tap the country’s record foreign reserves to pay its foreign debts.