MANILA (Reuters) - The Philippine economy clocked forecast-topping growth of 6.9 percent in the third quarter, making it one of Asia’s fastest growing and building expectations for a near-term increase in interest rates.
The on-year growth, which was above the 6.5 percent forecast in a Reuters poll and outpaced China’s 6.8 percent increase in the same period, was driven by strong industrial and services output, the statistics agency said on Thursday.
Despite central bank arguments that current monetary policy remains appropriate, economists see growing price pressures from the strong demand increasing the likelihood of policy tightening.
Economic Planning Secretary Ernesto Pernia said he was optimistic the government’s 6.5-7.5 percent growth target for 2017 would be met, supported by higher state spending and improving exports and farm output.
“We are on track to meeting the full-year target range “ Pernia said in a media briefing.
Investors cheered the data, with Manila's benchmark share index .PSI up as much as 0.5 percent at around 0300 GMT while the peso rallied to as high as 50.875 per dollar from Wednesday's close of 51.04.
Quarter-on-quarter growth of 1.3 percent was below the 1.6 percent forecast in a Reuters poll and weaker than the previous quarter’s upwardly revised 2.0 percent.
Like its peers in Asia, the Philippines is benefiting from the steady rebound in exports, which were up 12.2 percent in the nine months to September.
But economists have flagged Philippine President Rodrigo Duterte’s war on drugs and “erratic policymaking” as potential risks that could weigh on investor sentiment.
“It is notable that foreign direct investment has dropped off this year, while investment growth has continued to weaken,” Capital Economics said in a note.
Duterte has pledged to modernize the country’s airports, roads, railways and ports through a six-year $180-billion, “Build, Build, Build” initiative to attract much-needed foreign direct investment and lift economic growth.
Government consumption in the third quarter rose 8.3 percent from last year, faster than the previous quarter’s 7.1 percent, helping offset cooling household demand.
Growth in capital formation weakened to 6.6 percent in July-September, from 8.5 in the June quarter.
After the data’s release, Philippine central bank governor Nestor Espenilla sought to allay concerns of overheating.
“That begins to be a concern if we’re persistently growing above potential,” Espenilla told reporters. “To keep growing strongly without overheating, we expand potential itself - through high quality investments funded in a sustainable manner.”
Espenilla said the strong economic growth and “manageable inflation are in line with our expectations and validate current policy settings.”
However, some economists expect the central bank to raise the benchmark rate from the current 3.0 percent as early as next month to head off inflation, which has been creeping toward the upper end of the 2-4 percent target for 2017-2019.
“Further recent rises in world oil prices combined with robust GDP growth and rapid growth in consumer credit signal that the Bangko Sentral ng Pilipinas will have a tightening bias in its monetary policy stance,” said Rajiv Biswas, chief economist for Asia Pacific at IHS Markit.
For a graphic on Philippines economy, click - tmsnrt.rs/2qh7Evm)
Additional reporting by Manolo Serapio Jr and Karen Lema; Writing by Enrico dela Cruz; Editing by Sam Holmes