Business

Philippines economy slows sharply in third quarter

A rice market in Manila Image copyright AFP
Image caption The Philippines economy saw the slowest pace of growth in the third quarter since 2011.

Growth in the Philippine economy slowed sharply in the third quarter due to weaker growth in all sectors, the government said.

The economy grew by 5.3% from July to September from a year ago, well below market expectations of a 6.6% rise.

That compared to 6.4% growth in the previous three months from a year earlier.

Its gross domestic product (GDP) fell to a three year low with the slowest pace of growth since 2011.

Lower state spending was blamed for the slowing growth in the Southeast Asian country.

But Finance Secretary Cesar Purisima told the BBC that the government still had a lot of fiscal spending room to accelerate expenditure.

"The elements for growth are all there. Although this is a bump in the road we believe the trajectory for the economy is still pointed in the right direction," he said.

Economic Planning Secretary Arsenio Balisacan said it would be a "big challenge" to reach the government's growth target of 6.5% to 7.5% this year.

On a seasonally adjusted basis, the third quarter grew 0.4% from the second one, well below forecasts of a 1.4% rise. This also marked the weakest pace of growth since 2009.

Growth downgraded

News of the surprise downside in the economy has led the region's economists to downgrade their growth forecasts for the country.

Rahul Bajoria, economist at Barclays, said he was lowering his 2014 growth forecast for the Philippines to 6% from 6.5%.

"The largest source of the slowdown was the level of fiscal spending. Government spending fell 2.6% year on year in the third quarter and public construction projects contracted by 6.2% in the same period," he said in a note.

Trinh Nguyen, economist at HSBC, meanwhile, said she expected even slower growth, keeping her yearly forecast below 6%.

"Our GDP forecast is 5.9% for this year and we think growth will likely hover around there," she told Reuters. "Although some might despair that this is not a good number, the Philippines is still growing above trend growth rate of 5% and still very good considering the global landscape."

With the recent data showing slowing growth, economists agreed that the country's central bank would not raise interest rates in a meeting next month, because of signs that inflation was easing.

On Wednesday, the central bank had said that it had room to pause its tightening cycle after two rate increases this year because it expected the rate of annual inflation this month to slow to between 3.5 to 4.3%. The bank's target is 3-5%.

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