Pacific Money

Philippine Economy Stuns with Q1 Growth

The country outperforms all regional rivals, including – for the first time in 19 years – China.

The country outperforms all regional rivals, including – for the first time in 19 years – China.

The Philippines, as covered previously on Pacific Money, is in the midst of a period of positive news and strong economic performance.  Following reports that Philippine Government bonds had been upgraded to investment status at the start of May, this week saw further good news with the release of GDP figures for the first quarter. 

Manila’s National Statistical Coordination Board published data showing that the economy had grown an extremely impressive 7.8% year on year in the first three months of 2013. The quarter-on-quarter figure was 2.2% growth. 

Although China’s slowing economy is by now received much comment, the comparative growth rates still caused double-takes (and related headlines) around the globe as the Philippine’s growth rate beat that of its troublesome northern neighbour (China’s first quarter year-on-year GDP grew at 7.7%). The last time that happened, according to Bloomberg, was 19 years ago in the first quarter of 1994.  The Philippines also outdid all its other regional rivals and was thus the fastest growing East Asian state for the period.

Aside from the encouraging headline figure, statistics also revealed that manufacturing had performed strongly during the quarter – growing at 9.7%. Investment (reflected in the capital formation data) also proved exceptional – surging 47.7% in the first quarter as companies were encouraged by lower interest rates from the aforementioned credit rating upgrade and by resilient domestic demand driven consumption. The services sector also remains strong, now accounting for 60% of GDP.

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One weakness in the Philippines remains the quality and level of infrastructure, so the news that public construction grew at 45.6% will put some worried minds at ease. It is clear that the government is following advice from the likes of the IMF about infrastructure upgrades, moving in the right direction at a fast pace, even if there is much still to be achieved.

Despite all the strong news, the country’s stock market had a rough day after GDP growth data was released, with the Philippine Stock Exchange index falling 3.8%. Although this drop was overshadowed by Tokyo’s plunge on the same day, it was not insignificant.  One explanation could be that the country’s stocks have climbed dramatically over the last nine months, with price-earnings (PE) ratios climbing accordingly.  Profit taking is not unexpected under such circumstances.  Worries that the buoyant property market could start moving towards “bubble” territory are premature for now, even if the issue is worth watching.

With inflation staying low, the currency pulling back a bit from previous rises, GDP growing strongly, and the government making the right moves in areas requiring attention, 2013 continues to be a banner year for Manila.  Its ongoing territorial spat with China may be a tough challenge, but eclipsing its large northern neighbour’s growth rate will surely be music to its leader’s ears.