Philippine Growth Unexpectedly Holds Near Decade Low

By Karl Lester M. Yap and Cecilia Yap

Nov. 26 (Bloomberg) -- Philippine economic growth unexpectedly held near a decade low last quarter as exports plunged, signaling the country hasn’t yet benefited from the global recovery.

Gross domestic product increased 0.8 percent from a year earlier, matching the revised expansion in the second quarter, the National Statistical Coordination Board said today. That compares with the 1.9 percent median forecast of 10 economists surveyed by Bloomberg. The economy grew 0.6 percent in the first quarter, the smallest gain since a recession ended in 1998.

The Philippines is lagging behind Asian nations including India and Japan where growth is accelerating after policy makers boosted public spending and cut borrowing costs to fight the global slump. That may put pressure on the central bank to keep interest rates low as a record 2009 budget deficit limits President Gloria Arroyo’s ability to boost government stimulus.

“The government doesn’t have too much fiscal room to pump prime,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “Monetary policy would have to take over as the driver of GDP growth.”

Bangko Sentral ng Pilipinas, which kept its benchmark interest rate unchanged at record low of 4 percent this month, slashed borrowing costs by 2 percentage points from mid-December to July to spur domestic demand. The central bank should continue its “accommodative policy” as inflation is still low, Economic Planning Secretary Augusto Santos said today.

Growth Targets

The Philippine central bank can afford to maintain its monetary policy stance because of lower-than-expected economic growth and the “within-target” inflation outlook, Governor Amando Tetangco said in a mobile-phone text message today.

The government is maintaining its 0.8 percent-to-1.8 percent growth target for this year, as fourth-quarter economic expansion will be “much better” amid spending ahead of next year’s election, Santos said. It is also keeping its 2010 GDP growth target, Economic Planning Director Dennis Arroyo said.

Exports of goods and services by companies including Texas Instruments Inc., which account for about a third of the Philippine economy, dropped 13.6 percent in peso terms last quarter from a year earlier.

Consumer spending, which accounts for about 70 percent of the economy, rose 4 percent. Remittances from the more than 8 million Filipinos living overseas rose 6.9 percent in peso terms in the third quarter. Funds sent home from abroad account for about a 10th of the economy and help fund purchases of mobile- phones, cars and homes.

Tropical Storms

Philippine Long Distance Telephone Co., the nation’s largest company by market value, cut its 2009 revenue target this month, saying consumers may limit purchases of mobile-phone credits and Internet use to pay for repairs after tropical storms destroyed homes and damaged cars and appliances in the past two months.

The peso was little changed at 46.73 a dollar today, and the benchmark stock index climbed 0.6 percent as at 11:22 a.m. in Manila. The government is “a bit worried” about the weak U.S. currency, said Arroyo, the economic planning director.

The Philippines will maintain its 250 billion-peso ($5 billion) budget deficit ceiling for now, Santos said. That would be the biggest shortfall since Bloomberg data began in 1985.

Asian economies including China and Singapore are expanding while other nations have reported smaller declines. Malaysia said Nov. 20 that its recession eased last quarter, and neighboring Thailand’s economy contracted less than estimated in the three months through September, a report showed this week.

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