Growth slower than forecast

Business World

Q3 result surprises but gov’t, analysts still expect full-year goal to be topped

RESTRAINED state spending and a protracted dry spell put the brakes on third-quarter economic growth but the Philippines remains on track to exceeding this year’s target, the government yesterday said.

Growth slowed to 6.5% in July to September, below the government’s 6.7-7.7% forecast. It was lower than the first quarter’s 7.8% uptick and an upwardly revised 8.2% for April to June.

Offering a forecast of "moderate growth" of "around 6%" for the final three months of the year, Socioeconomic Planning Secretary Cayetano W. Paderanga said the full-year result would still be above the 5.0-6.0% target.

Growth has so far averaged 7.5% in the nine months to September.

Seasonally adjusted, the economy shrank 0.5% during the third quarter -- well below analysts’ forecasts of 0.9% growth and the second quarter result of 1.4%.

The contraction was the Philippines’ first in six quarters and added to signs of a broader slowdown in Asia. After a strong finish to 2009 and start to 2010, Asian economies have lost momentum as export growth has slowed and the impact of government stimulus around the world fades.

Data this week showed Thailand had slipped into a technical recession in the third quarter. Singapore’s export-driven economy shrank 18.7% in the September quarter, and growth has slowed in China, South Korea, Taiwan and Indonesia.

Figures released yesterday showed Japan’s export growth slowed for the eighth consecutive month in October, raising the risk the economy could contract in the fourth quarter.

The Philippines is one of the few Asian countries not to have raised rates since the global financial crisis, and the central bank said the growth data confirmed its stance had been appropriate.

"The inflation forecast remains favorable so we can maintain interest rates for some time," Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. told reporters.

Data from the National Statistical Coordination Board showed diminished state spending had dampened third quarter growth. With project disbursements frontloaded in the first semester, government consumption contracted by 6.1% in July-September.

Personal consumption expenditure, however, was up 4.1%, a point highlighted by Palace spokesman Ricky A. Carandang who told reporters: "The good news is that consumption has picked up and most of the other indicators seem to indicate robust consumption spending moving towards the end of the year."

Neeraj Jain, head of the Philippine country office of the Asian Development Bank, also pointed to increased investor confidence.

"The mood has gone up and... the economy is doing better than expected," he told AFP, adding the third quarter growth topped the bank’s forecast of 6.2-6.3%.

Industry and services drove economic expansion in the third quarter, rising an annual 9.2% and 7.7%, respectively, while agriculture slumped by 2.5%.

Mr. Paderanga said stronger private investments amid sustained investor confidence and increased consumption during the Christmas season formed the basis for the government’s fourth quarter outlook.

Economists agreed that 7% full-year growth this year was possible.

"I think it’s quite sure already that we will exceed the 5-6% target and there is a good chance that we will even grow above 7%," University of Asia and the Pacific economist Victor A. Abola said.

"I expect a stronger fourth quarter of around 6.5% given increased electrical consumption and exports," he added.

University of the Philippines economist Benjamin E. Diokno concurred, saying "with the recent numbers, full-year growth of 7% is attainable on the back of strong service sector and slight improvement in agriculture."

Mr. Paderanga, meanwhile, said the government was maintaining its growth targets for 2011. The goal is 7.0-8.0% but officials have lately been stressing the 5% uptick assumed in next year’s budget.

"For budgetary purposes next year, the official target is 4-5%, while the government is geared towards achieving a 7-8% growth range as identified for poverty reduction," Mr. Paderanga said. -- reports from Gloria Krisana L. Gallezo, Ana Mae G. Roa, Reuters and AFP