Philippine economy expands below expectations in Q4 2017, BSP likely to hike rate twice in 2018
Source: FxWire Pro - Commentary / 23 Jan 2018 08:26:37 Eastern Standard Time
Philippine headline economic growth came in below expectations in the fourth quarter of last year. On a year-on-year basis, the GDP grew 6.6 percent year-on-year, as compared with market expectations of 6.7 percent. Meanwhile, it rose 1.5 percent sequentially, as compared with expectations of 1.7 percent. However, domestic demand continued to be on a strong footing, expanding 7.3 percent year-on-year, the fastest rate in 2017.
Household and government consumption and investment bolstered on a year-on-year basis. Household consumption growth accelerated from 5.3 percent to 6.1 percent, while growth in investment accelerated to 9.3 percent year-on-year.
Meanwhile, net exports weighed on the headline growth further, subtracting 1.4 percentage points from overall growth. This pattern is in line with the recent broadening in the trade deficit.
The data for the third quarter economic growth was upwardly revised to 7 percent year-on-year from the initial estimate of 6.9 percent. The full year rise in GDP was a strong 6.7 percent. According to an ANZ Bank research, prospects for this year continue to be favorable with domestic demand likely to be augmented further by the government’s planned rise in infrastructure spending.
However, the issue is that the rise in infrastructure spending is coming at a time when the economy is already expanding at or above trend. This development might in turn deteriorate the underlying imbalances of accelerating credit and a broadening trade deficit.
The pressure of these imbalances is expected to be felt on the PHP until and unless there is a decisive and sufficient monetary policy response.
“As such, we are forecasting two rate hikes of 25bps each in Q1 and Q2 2018, respectively. At the same time, we acknowledge that the central bank has yet to signal any shift in its policy stance”, added ANZ Bank.
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