Philippine growth shock sparks doomsayer debate with investors

The Philippines’ sharp growth slump lays bare how revelations of massive graft have gutted confidence, even as top officials insist the nation is still on track.

Gross domestic product expanded just 4.0% in the three months through September from a year earlier, the statistics agency said Friday. That compares to a 5.5% pace in the second quarter and economist predictions of 5.2%.

The data snapped a string of robust third-quarter readings across Asia, with Taiwan, Malaysia and Vietnam all surprising on the upside. The much larger economies of China and Indonesia both also expanded slightly more than estimated, and easily outpaced the Philippines.

Growth in the sprawling island nation has spluttered after evidence of widespread government corruption related to flood mitigation projects triggered massive protests. That’s led to the government slowing projects and taking more time to award contracts. Business and consumer confidence meanwhile has slumped.

In the wake of Friday’s disappointing print, the peso weakened and stocks — the Philippines is already the world’s worst-performing market — dropped to a three-year low. Still, the bourse chief slammed pessimists.

“There have been a few doomsayers pontificating on the moribund state of our stock market,” Philippine Stock Exchange President and Chief Executive Officer Ramon Monzon said. “These doomsayers constantly propound in public the problems they perceive, thereby reinforcing the already negative perceptions of the investing public.”

Mr. Monzon’s comments sound like “denialism,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics. “The ongoing stock slump is quite concerning as it has a direct bearing on the real economy, given that business confidence metrics are quite sensitive, naturally so, to the market’s performance.”

Still, Mr. Chanco said the attitude “isn’t a surprise, considering the government’s recent track record of overestimating the economy’s growth prospects. How many times have we seen the government’s projection downgraded over the past few years?”

The Philippines, one of the region’s fastest-growing economies until the corruption scandal erupted, only last year widened its growth forecast for 2025 to 6% to 8%, but in June cut the range back to 5.5% to 6.5%.

Friday’s GDP numbers came days after more than 100 people died when Typhoon Kalmaegi slammed into the central Philippines, underscoring why people are so angry at the misuse of public funds earmarked to alleviate flooding. The country is now grappling with another storm, Fung-Wong, which is threatening lives and livelihoods across the north.

Announcing the data, Economic Planning Secretary Arsenio Balisacan said growth will pick up, although he did acknowledge the country’s underlying challenges.

“The third-quarter performance reminds us of the urgent need to address key challenges and strengthen our foundations for rapid, sustained and inclusive growth,” he said at a briefing in Manila. “What I think lagged behind and we should have worked on harder is the governance and institutional mechanisms.”

In the near-term, officials will focus on helping those affected by the twin typhoons. On Thursday, President Ferdinand Marcos Jr. announced a state of “national calamity” and a day later, the government released a 60-day freeze on the price of basic goods, including bread, salt, bottled water, powdered milk, tinned meat and candles.

“We expected the weakness in investment, but not such a large pullback in household spending,” economist Tamara Mast Henderson wrote in a report for Bloomberg Economics, predicting the Bangko Sentral ng Pilipinas will cut its key rate a further 25 basis points in December.

Some of the softness in government consumption and investment may be able to be reversed in coming months, said Lavanya Venkateswaran, senior Asean economist at Oversea-Chinese Banking Corp. But while more rate cuts may be “in play,” their effectiveness is questionable.

The weakness in household spending despite the central bank’s “aggressive rate cutting cycle and low inflationary pressures potentially underscores a worsening in confidence,” Venkateswaran said. — Bloomberg