Philippine Growth Quickens on Remittances, Spending

By Karl Lester M. Yap

Nov. 27 (Bloomberg) -- Philippine economic growth unexpectedly accelerated last quarter as higher government spending and remittances countered a slowdown in export growth.

Gross domestic product expanded 4.6 percent in the third quarter from a year earlier, the National Statistical Coordination Board said in Manila today. That was faster than the revised 4.4 percent gain in the second quarter and the 4.4 percent median forecast of 15 economists surveyed by Bloomberg.

“The Philippines’ economy is still consumption driven, powered by flows from overseas Filipinos,” said Ildemarc Bautista, an economist at Metropolitan Bank & Trust Co. in Manila. “What we have to avoid is too much of a gloomy forecast for next year that might spook people into saving too much.”

Easing inflation will help support growth in the coming months by bolstering consumer spending, which accounts for 70 percent of the economy, Economic Planning Secretary Ralph Recto said today. President Gloria Arroyo is building more roads, bridges and airports to create jobs and bolster an economy poised to slow for the first time in three years.

The peso rose 0.5 percent to 48.88 per dollar as of 11:01 a.m. in Manila, according to Tullett Prebon Plc. The Philippines’ benchmark stock index rose for a fourth day.

The government, which in May abandoned a plan to end a decade of budget deficits this year, may postpone its goal of balancing the budget by a year to 2011 as it increases spending on infrastructure to attract investments, Recto said at a briefing in Manila. The shortfall may be 0.5 percent to 1 percent of gross domestic product in 2010, he said.

Inflation Eases

Inflation, which reached a 16-year high in August, may have slowed for a third month in November as fuel and food prices eased, the central bank said today. Lower inflation rates may boost growth in the fourth quarter to a range of 4 percent to 4.6 percent, Recto said.

The Philippine government this month lowered its 2008 growth target a fifth time to a range of 4.1 percent to 4.8 percent and said expansion may slow to an eight-year low next year. The Southeast Asian economy grew 7.2 percent last year, the fastest pace in three decades.

Governments worldwide have slashed borrowing costs and pledged to increase spending as the worst financial crisis since the Great Depression pushes the world into a recession. Global growth will slow to 1 percent in 2009 from 2.6 percent this year, the World Bank said on Nov. 11.

Interest Rates

Bangko Sentral ng Pilipinas last week kept its benchmark interest rate unchanged at 6 percent for a second month after three increases since early June. The central bank has reduced deposits it requires lenders to hold in reserve, approved a dollar-lending facility and increased the amount banks can borrow from it to boost lending.

Arroyo has vowed to create 1 million jobs by 2010 to lower the unemployment rate, which at 7.4 percent in July is the highest after Indonesia’s in the Asia-Pacific, according to Bloomberg data.

Remittances from the more than 8 million Filipinos abroad, or about a tenth of the population, are sustaining consumer spending as exports wane. Money sent home from abroad jumped 25.5 percent in the third quarter in peso terms, the fastest pace since the second quarter of 2001.

Consumer spending grew 4.6 percent in the third quarter, faster than the 4.1 percent pace in the previous three months. Government spending, which accounts for a tenth of the economy, increased 12.5 percent, compared with a 1.5 percent decline in the second quarter.

Exports of products made by Texas Instruments Inc. and other companies, which make up two-fifths of the Philippine economy, rose 4.7 percent from a year earlier in peso terms, easing from 7.6 percent in the previous three months.

To contact the reporter on this story: Karl Lester M. Yap in Manila at o kyap5@bloomberg.net.