MANILA: The Philippine economy grew at its fastest pace in more than a year in the second quarter, strengthening views the central bank will raise interest rates again to curb inflation.
The Southeast Asian economy remains a popular investment destination due to relatively strong economic fundamentals, a stable political environment and improved credit ratings.
Standard & Poor's raised the country's long-term credit ratings in May to two notches above investment grade.
After a slow start to the year, economic growth accelerated to 6.4 percent in the second quarter from a year earlier on strong manufacturing and exports. The outcome beat market forecast of 6.2 percent, putting the country on track to meet its full-year GDP target of 6.5-7.5 percent.
On a quarter-on-quarter basis, the economy grew a seasonally adjusted 1.9 percent against the upwardly revised 1.4 percent in the March quarter, the fastest pace in five quarters.
Growth in the first half was 6.0 percent. For the economy to hit the low end of the government's target this year, growth should average at least 6.9 percent in the second half, Arsenio Balisacan, socioeconomic planning secretary, told reporters.
The latest data bolsters expectations the central bank will follow up on July's rate hike - the first in three years - as early as next month to stay on top of rising prices.
"The strong growth print means that the BSP (Bangko Sentral ng Pilipinas) can focus on taming inflationary pressures. We expect a 25-basis-point hike of both the SDA (special deposit account) and policy rates," said Trinh Nguyen, economist at HSBC in Hong Kong.
Inflation has averaged 4.3 percent in the seven months to July, above the midpoint of the central bank's 3-5 percent goal this year and outside next year's 2-4 percent inflation target.
The consensus from a Reuters quarterly poll in July was for the central bank to raise the main policy rate to 4.0 percent before the end of the year.
Domestic demand continued to be underpinned by remittances from Filipinos working and living abroad, which grew 5.8 percent to $11.4 billion in the first half of the year from a year ago.
That coupled with robust exports and manufacturing makes the Philippines one of the fastest-growing economies in Asia, matching Malaysia's second-quarter annual growth.
The second quarter has been largely uneven for Southeast Asian economies. While growth in Malaysia accelerated, Singapore and Thailand escaped recession and Indonesia underperformed expectations with growth at its weakest in nearly 5 years.
One bright spot for the Philippines is that exports are gaining momentum, expanding for a fifth straight month in June, with the growth rate at its fastest in six months.
The economy is benefittiing from a pick-up in global demand while factories that produce parts in the global tech supply chain are also reaping from launches of new mobile phones and tablets such as from Apple Inc.
Growth was led by the industrial sector which grew an annual 7.8 percent, higher than 5.3 percent in the first quarter but below growth of 10.5 percent in the same period of 2013.
Balisacan said the government can step up spending in the second half, especially for reconstruction in communities devastated by a super typhoon last year, allowing the country to hit this year's growth target.
But his outlook is not without risks, he said, given the impact later this year of an El Nino dry weather phenomenon on power and farm output.
A policy paralysis that has not moved government plans forward in sectors such as the auto industry, could also cause multinationals to shift production out of the Philippines and hurt future investment, industry executives say.
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