Bloomberg News

Philippine Growth Misses Estimate, Adds Case for Stimulus

December 06, 2011

(Updates with comment from economic planning secretary in third paragraph.)

Nov. 28 (Bloomberg) -- The Philippine economy expanded less than analysts estimated in the third quarter, prompting the government to suggest the central bank may consider cutting interest rates to strengthen growth. Bonds gained.

Gross domestic product increased 3.2 percent from a year earlier, compared with a revised 3.1 percent gain in the three months through June, the National Statistical Coordination Board said in Manila today. The median of 14 estimates in a Bloomberg News survey was for a 4.1 percent expansion.

Bangko Sentral ng Pilipinas, which is set to decide on borrowing costs this week, may consider easing its policy rate, Economic Planning Secretary Cayetano Paderanga said after the report today. Tropical storms hurt farming and faltering government spending that slowed construction was compounded by the deepening European debt crisis, which contributed to a 13.1 percent plunge in exports last quarter.

“It becomes more compelling for fiscal and monetary authorities to carry out more aggressive counter-cyclical policies,” said Emilio Neri, an economist in Manila at Bank of the Philippine Islands. “What’s disappointing is the means is there; there’s money, ammunition to spend to counter the external weakness.”

Government Spending

Government spending fell 0.6 percent in September from a year earlier, and Paderanga said today the Philippines should consider increasing its fiscal stimulus package.

President Benigno Aquino unveiled a 72 billion-peso ($1.6 billion) fiscal stimulus package in October, joining neighbors including Malaysia and Indonesia in seeking to protect growth as Europe’s debt woes and a struggling U.S. economy increase the risk of another global recession. The government had a budget deficit of 53 billion pesos in the January-to-September period, less than the targeted 234.35 billion-peso shortfall.

The central bank will probably keep its benchmark interest rate unchanged this week even with an inflation rate that is at the highest level in 2011, economists surveyed by Bloomberg News predicted before the GDP data was released.

Easing growth has prompted companies including Philippine Long Distance Telephone Co. to cut profit forecasts for this year as consumers cut back on spending. Ginebra San Miguel Inc., a Philippine distiller, reported a third consecutive loss last quarter after revenue declined.

Tetangco’s Signal

The peso has fallen more than 2 percent this month, declining along with Asian currencies as Europe’s worsening crisis roils global financial markets and prompts investors to shun emerging-market assets. The Philippine Stock Exchange Index fell 6.8 percent last quarter and slid 0.8 percent today. Benchmark 11-year bonds due January 2022 gained for a fourth day.

Bangko Sentral has scope to boost demand in response to slower global growth, Governor Amando Tetangco said last week, signaling officials may start considering easing at the Dec. 1 monetary policy meeting. The central bank kept the rate it pays lenders for overnight deposits at 4.5 percent on Oct. 20.

“The balance of risks to future inflation continues to be tilted slightly to the downside,” Tetangco said. That gives the central bank “some room for policy maneuver to address possible demand shocks from global developments,” he said.

Still, Deputy Governor Diwa Guinigundo said today he doesn’t believe an easing of monetary policy is “imperative.” Domestic credit remains strong and interest rates continue to be low, he said in an e-mail from Manila.

The World Bank forecast growth in Asia will slow next year and said governments should focus on boosting economies by increasing spending. Thailand’s economy may contract this quarter, the government said last week, while Indonesia’s central bank cut its growth forecast for 2012 this month.

Fine Line

“Policy makers will need to walk a fine line guarding against the short-term risks to growth and the lingering vulnerabilities associated with a still-buoyant, if not overheated, economy,” the World Bank said in a Nov. 22 report. “To mitigate the vulnerabilities of continued low real interest rates, an easing of fiscal policy appears the most appropriate line of defense before the monetary policy stance is eased.”

Philippine exports tumbled the most in 29 months in September, with shipments sliding 27 percent from a year earlier. Overseas sales are equivalent to about 30 percent of the economy.

“Growth is fast becoming the bigger risk than inflation” for Asian economies such as the Philippines, Edward Teather, a Singapore-based economist at UBS AG, said before the report. “With Europe facing a recession and food prices coming down, Asian central banks including the BSP will start cutting interest rates next year.”

--With assistance from Clarissa Batino and Max Estayo in Manila, Michael Munoz in Hong Kong and Cherian Thomas in Bangalore. Editors: Shamim Adam, Stephanie Phang

To contact the reporters on this story: Karl Lester M. Yap in Manila at; Cecilia Yap at

To contact the editor responsible for this story: Stephanie Phang at

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