Philippines: Annual growth picks up on stronger government consumption and the external sector
November 16, 2017
The Philippine economy recorded another period of robust growth in Q3, supported by strong government consumption and benefiting from solid external demand. GDP growth accelerated in annual terms from a revised 6.7% in Q2 (previously reported: +6.5% year-on-year) to 6.9% in Q3, beating market expectations of a softer 6.5% expansion. In quarter-on-quarter seasonally-adjusted terms, the economy grew 1.3% in Q3, coming in below the prior quarter’s revised 2.0% expansion (previously reported: +1.8% quarter-on-quarter).
Growth benefited from a ramp-up in government consumption, which expanded 8.3% in annual terms in Q3, above Q2’s already strong 7.1%. On the other hand, private consumption, one of the key drivers of growth in the Philippines, slowed considerably. Household spending increased at a multi-year low of 4.5% in Q3, softening from Q2’s notable 5.9% growth. Despite robust credit expansion, flows of overseas remittances weakened in September and inflation picked up pace throughout the quarter, eating into consumers’ pocket and translating into weaker household spending growth. Fixed investment growth was also less rosy, but nonetheless robust, at 7.1%, moderating from Q2’s 9.4% rise. This was partly the result of unfavorable base effects and the government underspending its infrastructure budget.
Meanwhile, the external sector continued to strengthen. Exports of goods and services increased 17.2% in Q3, not too far off from the 20.4% rise recorded in Q2. Exports were aided by a weaker peso and benefited, as in other Asian countries, from strengthening global demand for electronic products. Imports also grew robustly, at 13.9% in Q3, albeit at a significantly more moderate rate than the 18.7% increase observed in Q2, likely due to weaker demand for capital equipment. Consequently, the external sector’s net contribution to GDP jumped from 1.9 percentage points in Q2 to 2.8 percentage points in Q3.
The economy is poised to maintain its growth momentum going forward, supported by broad macroeconomic stability, increased infrastructure spending and supportive external demand. A favorable regional environment will continue to support the external sector. Moreover, after September’s decline, remittances should grow again going forward, stimulating private consumption. Nevertheless, business sentiment could be weakened if the security situation in Mindanao is not clearly resolved or if investors grow more skeptical about President Duterte’s war on drugs.