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Philippine second-quarter GDP growth slowest in three years, puts central bank in tight spot

FILE PHOTO: A security guard stands beside a logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted at the main gate in Manila, Philippines April 28, 2016. REUTERS/Romeo Ranoco/File Photo

By Karen Lema and Neil Jerome Morales

MANILA (Reuters) – Philippine economic growth unexpectedly weakened to a near three-year low in the second quarter, putting at risk the government’s full-year goal and raising pressure on the central bank to be less aggressive on its rate hike plans when it reviews policy later in the day.

Gross domestic product grew 6.0 percent in April-June, well below the 6.7 percent forecast in a Reuters poll of economists and slower than the downwardly revised 6.6 percent growth in the first quarter. The second-quarter growth matched the 6.0 percent pace in the third quarter of 2015.

The Philippine economy remains one of the fastest growing in Asia, but the surprise GDP slowdown increases the challenge for a government that is funding a multi-billion infrastructure overhaul and a central bank grappling with rising inflation.

The GDP data was released ahead of the central bank’s policy announcement at around 0800 GMT, at which it is widely expected to raise the benchmark interest rate for a third time this year to fight inflation that hit another five-year high in July.

A Reuters poll, taken before the GDP data, predicted a 50-basis-point rate hike, but some economists say the central bank could exercise caution.

“The central bank will be cautious following the GDP data, but the key issue is inflation,” said Chidu Narayanan, economist at Standard Chartered Bank in Singapore. Narayanan still expects a 50 bps rate increase, to add to the central bank’s two earlier rate hikes of 25 bps each.

Following the data, Manila’s benchmark share index <.PSI> fell as much as 1.3 percent. The peso <PHP=> dipped slightly against the U.S. dollar.

The central bank “may pull back from an aggressive action,” said ING Bank Manila senior economist Joey Cuyegkeng, but stood by his earlier prediction for a 50 bps hike.


Economic Planning Secretary Ernesto Pernia told a news conference the data was disappointing, saying “this growth is less than what we have hoped for.”

“To be fair and put things in proper context, the slowdown is partly due to policy decisions undertaken that are expected to promote sustainable and resilient development.”

Weighing on growth were the closure of several mines as part of an environmental crackdown and the six-month shutting of the country’s biggest tourist destination, Boracay island, which draws two million annual visitors.

The government was also “gravely concerned” about almost stagnant growth of the agriculture sector.

Manila is targeting growth of 7-8 percent this year, which is more optimistic than the 6.8 percent growth forecast of the Asian Development Bank and the International Monetary Fund’s 6.7 percent projection for 2018.

Pernia said the economy has to expand by 7.7 percent in the second half of the year to achieve the lower end of the government’s target.

(Additional reporting by Enrico dela Cruz; Writing by Manolo Serapio Jr.; Editing by Shri Navaratnam)

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