Here's why the Philippine economy beats Asian peers

GDP growth reached 6.1% as domestic demand and consumption thrives.

According to DBS, the Philippine economy has been a clear outperformer thus far this year, registering high growth rates and low levels of inflation. Headline GDP growth reached 5.9% YoY in 2Q, taking growth in 1H to a solid 6.1%. Sequentially, the economy slowed to 0.2% QoQ sa, after a 3% jump in 1Q.

Here's more from DBS:

Domestic demand continued to perform well, driven by increased consumer and government consumption. On the external front, overall demand has been holding up despite significant headwinds. In particular, services exports maintained a steady growth rate through 1H.

Meanwhile, manufacturing output eased after a sharp spike in 1Q. Going forward, the country is well-positioned to handle a slowdown in the global economy, with ample room for further monetary and fiscal stimulus if needed. We have also revised up our 2012 GDP forecast to 5.6% (on account of the strong 1H numbers), while lowering our 2013 forecast to 5% to reflect a weaker global environment.

The manufacturing growth spurt in 1Q proved to be short-lived. After surging by 7.1% QoQ sa in 1Q, the manufacturing sector contracted by 2.9% in 2Q. Final demand has clearly been weak and it is not surprising that manufacturing output slumped after the restocking process is completed.

Looking at the trade numbers, it is readily apparent that the value of electronics exports has been going sideways since April. However, overall export numbers have held up relatively well due to a spike in non-electronics manufacturing for April and May. The phenomenon was not repeated in June.

With regional PMI numbers showing that economic activity is slowing, a revival in merchandise export demand is unlikely in the near term. For July, an export reading of -3.5% YoY is expected.

The central bank (BSP) will hold a monetary policy meeting this Thursday. After the bump in inflation to 3.8% YoY in August, a rate cut does not appear likely as BSP may want to anchor inflation expectations first. In any case, export deterioration is likely to prompt more action by the end of this year and we expect the overnight policy rate to end the year at 3.5%, down from 3.75% currently.

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