The Philippine economy grew 7.1% in the third quarter of 2016, surprising market watchers expecting slower growth in the absence of election-related drivers.
The Philippines’ performance is the strongest in Asia so far, faster than China’s 6.7% and Vietnam’s 6.4%. India, which has been recording GDP growth rates above 7%, will release its third quarter results later this month.
Consumer spending and investment propped up the Philippine economy at a time when it was widely expected to slow down as election-related spending dwindled. Investment rose 20% on the year, while consumption grew 7.3%.
“Investments continue to drive this economic growth. Household consumption also remains a pillar of strength for the domestic economy,” Reynaldo Cancio, a director of the National Economic and Development Authority, said on Thursday.
Consumer confidence of Filipinos hit an all-time high in the third quarter, buoyed by improvements in the peace and order situation and the positive prospects for the Duterte government.
As Filipinos spent more and investors returned from the sidelines, the Philippine economy bucked the slowdown seen in the third quarters of previous election years as campaign spending subsided.
“There was a lot of pent-up investment due to uncertainty over the elections. As a result, investment rose massively,” Trinh Nguyen, senior economist at Natixis, told the Nikkei Asian Review.
“Consumption, too, was robust. The Philippines is expected to have one of the best consumption growth stories in the region. As a result, it is one of the most stable in the region,” she added.
Philippine companies also enjoyed higher profits in the same period. Nine of the country’s most valuable conglomerates, which are part of the Nikkei Asian Review’s A300 list, grew their aggregate net profit by 29.36% and sales by 7.13%.
Revenues of SM Investments, the country’s largest company by market capitalization, grew 9.82% to 82.73 billion pesos ($1.67 billion), with net income rising 9.87% to 6.68 billion pesos. SM Investments owns the country’s biggest lender, shopping mall developer and retailer.
On the supply side, the agriculture sector rebounded in the third quarter after five consecutive quarters of decline, providing an added boost to industry and services, which grew 8.6% and 6.9%, respectively.
Government spending, meanwhile, significantly slowed in President Rodrigo Duterte’s first three months in office. “We see that it was still a government in transition and that could be responsible for this slowdown,” senior economic planner Rosemarie Edillon said.
Duterte, who assumed the presidency on June 30, is spending the remainder of his predecessor’s 3 trillion peso national budget. Duterte will roll out his own 3.35 trillion peso spending plan focused on ramping up infrastructure spending to develop the countryside.
Going forward, the Philippines must rely on local drivers as external demand remains cloudy despite a rebound in exports. Policy uncertainties in the U.S. and the U.K. are also weighing on the country’s economic outlook.
Given U.S. President-elect Donald Trump’s campaign promise to crack down on illegal immigrants and keep jobs at home, the Philippines is already crafting scenarios on the impact to its main growth drivers: business process outsourcing and overseas remittances.
Duterte’s firebrand rhetoric and off-the-cuff remarks also cloud the outlook for the Philippines, according to Capital Economics. “With Duterte in charge, it is hard to rule out a sudden shift in economic policy or a disruption of the political stability that has characterized the last six years,” it said.