The Market Monitor Minding the Nation's Business
By Luis Leoncio
The 6-percent economic growth in the third quarter that the government trumpeted as “among the fastest in Asia” failed to impress the market, which was, in fact, disappointed by the lower-than-expected figure.
When it was released on Thursday, the peso immediately lost 15 centavos and finished the day at 47.12 to a dollar; the day before, it closed at 46.97.
The equities market also reacted strongly, with the stock index retreating heavily.
The bellwether Philippine Stock Exchange index dropped 136.18 points to close at 6,927.97, partly because of the volatility in China’s stock market “and market disappointment over the GDP figures,” an analyst said.
All counters finished in the red, with holding firms sustaining the biggest losses at 171.69 points or 2.57 percent to end 6,502.88. Financials lost 27.78 points or 1.78 percent to finish 1,530.79; property erased 51.71 points or 1.74 percent to 2,923.02; industrial gave up 145.92 points or 1.29 percent to 11,154.52; mining and oil shed 91.0 points or 0.84 percent to 10,738.29; and services went down by 9.06 points or 0.57 percent to close 1,585.64.
A trader said the domestic economy’s 6-percent output for the quarter, as measured by GDP, was below the 6.3-percent market consensus and, thus, was a negative to the local currency.
The economy’s output for the quarter, however, was higher than the upwardly revised 5.8-percent expansion in the second quarter of the year.
Professor Benjamin Diokno of the University of the Philippines School of Economics (UPSE) said that with the third-quarter GDP result, the government was “unlikely” to hit its goal of a 6-percent to 6.5-percent growth by the end of the year.
“GDP growth averaged 5.6 percent until September. Assuming the economy could grow by 6.9 percent in the fourth quarter, an assumption that is possible but not likely, then the full-year GDP growth would be 5.925 percent,” said the former budget secretary.
Diokno said his forecast was a 5.9-percent growth for the whole year, lower than the government estimate. He added that even his forecast was now highly improbable as a result of the lower-than-expected growth in the third quarter.
According to Economic Planning Secretary Arsenio Balisacan, the economy could grow as much as 6.9 percent in the fourth quarter, bringing the full-year average to at least 6.0 percent due to a boost in consumption during Christmas.
With the final quarter almost over, agriculture and exports are showing downward signs: retail sales are tepid, and government spending is still below program, Diokno said.
The economy grew faster than the 5.8-percent expansion in the previous quarter but below the 6.3-percent median expectation of economists in a Bloomberg News poll, as a slowdown in manufacturing weighed on growth in services and public spending.
“Clearly, the outcome of the national election will have an impact on the economy,” Balisacan told reporters. “We are hoping that whoever will get elected will speed up and sustain the reforms so we can raise the potential of the economy.”
The Philippines has the potential to grow by as much as 8.0 percent next year, he also said, but added that President Aquino’s successor must address festering problems like the country’s decaying infrastructure.
The dry spell brought about by El Nino, projected to peak in December and January, has begun to hurt agriculture, which was down 1.1 percent quarter-on-quarter, data showed.
Balisacan said this was due to inadequate irrigation of farmlands. But he said the government was addressing the problem.
The services sector was the main growth driver in the third quarter, expanding 7.3 percent — the highest in two years—from 5.6 percent last year.
Year-on-year, industry growth slowed to 5.4 percent from 7.8 percent, while agriculture declined 0.4 percent from a 2.6-percent contraction.
Analysts said strong private consumption and government spending would drive future growth, but would be tempered by weak exports.
“In our view, the key risks to growth continue to stem from weaker external demand and adverse weather conditions, though inflation has remained manageable,” Barclays analyst Rahul Bajoria said.
Service industries, which include real estate and retailing, were the main drivers of growth in the third quarter, expanding 7.3 percent, which was the fastest pace since 2013. Agriculture showed signs of recovery, growing 0.4 percent compared with a contraction a year earlier.
The Philippines has been one of the best performing economies in Asia for several years, growing at an average rate of 6.3 percent between 2010 and 2014.
But despite increased government efforts to raise living standards, the country still faces considerable challenges, including its vulnerability to typhoons and other natural disasters, poverty, corruption and poor infrastructure.
Officials said risks to the growth outlook include El Nino’s effect on agriculture and potential political uncertainty as Mr. Aquino’s six-year term draws to a close. Elections are set for May.
“We are confident that after five years we have laid our house with firmer foundations,” said Finance Secretary Cesar Purisima. “But reform is a game that has no end. Increasingly we look to our next set of leaders to carry the work of charting our future.”
He said the government’s 2016 budget will meet its goal of investing 5 percent of GDP in infrastructure.
Weakness in the global economy hurt trade in the third quarter. The Philippines posted a trade deficit of P58.8 billion for the three months, compared with a surplus of P7.3 billion a year earlier.