Philippines is 2nd fastest growing economy in Asia

The Philippine economy grew at its fastest pace in more than a year in the second quarter and one of the robust in Asia second to China. 

The Southeast Asian economy remains a popular investment destination due to relatively strong economic fundamentals, a stable political environment and improved credit ratings. Standard & Poor’s raised the country’s long-term credit ratings in May to two notches above investment grade.

After a slow start to the year, the economy grew a seasonally adjusted 1.9 percent against the upwardly revised 1.4 percent in the March quarter, the fastest pace in five quarters.

“The rebound in net exports offset the slowdown in public spending,” ANZ said in a research report, adding that it was reiterating its 2014 growth forecast of 6.9 percent on the back of the recovery in manufacturing.

On a year-on-year basis, growth accelerated to 6.4 percent in the second quarter on strong manufacturing and exports. The outcome beat market forecast of 6.2 percent, putting the country on track to meet its full-year GDP target of 6.5-7.5 percent.

Arsenio Balisacan, socioeconomic planning secretary, said that for the economy to hit the low end of the government’s target this year, growth should average at least 6.9 percent in the second half. First-half GDP was 6.0 percent.

The latest data bolsters expectations the central bank will follow up on July’s rate hike – the first in three years – as early as next month to stay on top of rising prices.

“The strong growth print means that the BSP (Bangko Sentral ng Pilipinas) can focus on taming inflationary pressures. We expect a 25-basis-point hike of both the SDA (special deposit account) and policy rates,” said Trinh Nguyen, economist at HSBC in Hong Kong.

Inflation has averaged 4.3 percent in the seven months to July, above the midpoint of the central bank’s 3-5 percent goal this year and outside next year’s 2-4 percent inflation target. Emilio Neri, lead economist at Bank of the Philippine Islands, said he expects food prices to remain elevated after Manila rejected bids at Wednesday’s tender for fresh rice supply.

The peso rose to its strongest in more than three weeks on expectations of a further rate hike after the GDP data.

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