What’s With the Philippine Economy?

A disappointing quarter has some worrying about Manila’s prospects.

Over the past few years, the Philippines has emerged as one of the most vibrant economies in the world, shedding its old image as “the sick man of Asia.” Manila closed out last year as Asia’s second-fastest rising economy, after China, with a 6.1% growth rate.

Yet the first quarter statistics for 2015 are a bit worrying. According to the Philippine Statistics Authority, growth in the Philippine economy slowed in the first quarter of 2015 to 5.2%, its weakest level in three years and way below the 6.6% mark many had predicted.

The slowdown has been attributed to several factors. Exports dropped dramatically – growing just 1% on year compared with 12.8% in the fourth-quarter – amid declining external demand across some of Manila’s main trading partners such as Japan and China. Government spending was also quite low at 4.8%, nearly half what it was in the fourth quarter of last year.

The key question, though, is whether this is just a blip or the start of a slower growth trend for the rest of the year. Philippine officials are convinced that it is the former. The country’s economic planning chief, Arsenio Balisacan, says government spending and exports can be expected to pick up in the coming quarters. Philippine Finance Secretary Cesar Purisima also told CNBC that despite the focus on government spending, private sector figures were still quite encouraging in the first quarter. Investment also expanded significantly by around 10.1% on year, while household consumption also rose relative to the previous quarter.

More generally, the fundamentals of the Philippine economy are quite strong. For instance, in a report released last month, the World Bank noted that strong remittances, falling oil prices, and upbeat consumer and business sentiments indicated strong growth for 2015. It suggested that a 6.5% growth was not out of reach.

But the report also warned of general risks to near-term growth, some of which played into the country’s sluggish first quarter in 2015. These include delays in the planned execution of the 2015 budget, delays in investment (in particular those under private-public partnership projects) and a tepid global economy. The lower 5.2% growth rate, and the underlying trends, make the government’s 7-8% growth forecast for 2015 – and even the World Bank’s lower 6.5% figure – look quite optimistic for now.