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Economy

Philippine growth accelerates on public spending and rate cuts

But 6.2% expansion in Q3 means year-end pick up needed to hit 2019 growth target

Philippine government spending jumped 9.6% in the third quarter. (Photo by Ken Kobayashi)

MANILA -- The Philippine economy grew 6.2% in the third quarter, as government spending and lower interest rates contributed to a recovery from weak expansions in the first half of the year.

The expansion was faster than the median forecast in a Reuters survey of economists of 6%, and up from the previous quarter's pace of 5.5%. The data released Thursday puts growth for the first nine months of 2019 at 5.8% -- still below the government's 6%-7% target.

The data is a boost to the administration of President Rodrigo Duterte, as it seeks to safeguard the domestic economy from the impact of the U.S. -China trade war, which has dented the growth of other Southeast Asian countries. Indonesia, the largest economy in the region, announced a 5.02% expansion earlier this week.

Government spending, which jumped 9.6% was a big factor in the acceleration. President Rodrigo Duterte's 2019 budget was not signed until mid-April after congressional wrangling over pork barrel funds delayed its passage. This forced the government to operate based on the 2018 budget, crimping state spending by nearly 1 billion pesos (around $20 million) a day, according to Finance Secretary Carlos Dominguez.

On the supply side, services rose 6.9%, the industrial sector climbed 5.6%, while agriculture improved 3.1% despite an outbreak of African swine fever that killed tens of thousands of pigs.

The economy must grow 6.7% in the fourth quarter to achieve the full-year growth target. Socioeconomic Planning Secretary Ernesto Pernia said Thursday this was "very achievable."

"We have seen the economy surging and the momentum will continue for us to reach that," Pernia told reporters in Manila.

The Philippine economy historically sees faster growth in the final quarter, as remittances from 10 million overseas Filipino workers help power a Christmas spending splurge.

Yet, Pernia said external factors could imperil growth. "The trade war between the U.S. and China is the biggest threat not only to the Philippines, but to the whole global economy," he said.

The Philippine central bank has cut the benchmark interest rate by a total of 75 basis points to 4.0% this year amid stabilizing inflation. The central bank also reduced reserve requirements for banks by 400 basis points to 14% in an attempt to pump money into the financial system.

Central bank Benjamin Diokno has signaled that the monetary easing has ended, ahead of the next policy meeting on Nov. 14.

Asked to react to Diokno's stance, Finance Secretary Dominguez, who is also a member of the monetary board, said on Monday that rate cuts were "sufficient" and they "will do the job" for now.

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