Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight
Key Points:
- The Philippines economy showed buoyant GDP growth of 7.1% year-on-year (y/y) in Q3 2016, boosted by a rebound in agricultural production and strong growth in industrial output.
- Household consumption expenditure underpinned the strong Q3 GDP performance, rising by 7.3% y/y. However, government consumption expenditure slowed sharply from 13.5% y/y in Q2 to 3.1% in Q3.
- Growth in investment remained very strong, up 20% y/y in Q3.
- The export sector grew by 8.8% in Q3, led by rapid growth in exports of services at a pace of 14.2% y/y. Total imports grew at an even stronger pace of 14.2% y/y, boosted by the strength of domestic demand.
- The upturn in agricultural production was an important positive factor boosting the strong GDP performance in Q3, 2016, with agriculture, forestry and fisheries output up 2.9% y/y after five consecutive quarters of contraction.
- Industrial output strengthened in Q3, 2016, rising by 8.6% y/y compared with 7.1% growth y/y in Q2, 2016. Construction output led the strong performance of the overall industrial sector, up 15.5% y/y in Q3, strengthening further after rapid expansion in H1, 2016. Manufacturing output was also strong, up 6.9% y/y in Q3, improving on the 6.2% y/y growth rate in Q2.
- The services sector posted strong growth of 6.9% y/y, albeit moderating compared to the 8.3% pace of growth recorded in Q2. This partly reflected a significant slowdown in government services, which grew at 3.7% in Q3 compared to 6.4% in Q2. The financial services sector grew at a rapid pace of 8.1% y/y while the real estate sector grew at 8.8% y/y.
Outlook:
The strong third quarter GDP number was above market expectations, and signals that the Philippines will record a fifth successive year of rapid GDP growth in 2016. IHS Global Insight forecasts that the Philippines will maintain a strong GDP growth rate over the medium term at a pace of around 6.0% per year over 2017-2019. The GDP of the Philippines in nominal USD terms is projected to rise from around USD300 billion in 2016 to USD400 billion by 2019 and USD750 billion by 2026. By 2026, the Philippines is projected to become the second largest economy in ASEAN after Indonesia.
The strong pace of economic growth over the past five years is helping to drive rapid growth in per capita living standards, with per capita GDP rising from USD2,150 in 2010 to around USD3,000 in 2016 and forecast to double from current levels by 2026, reaching USD6,400. This is expected to unleash very rapid growth in consumer spending by the fast-growing numbers of middle class households in the Philippines over the next decade, as well as supporting strong growth in manufacturing output and construction spending.