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Philippines' growth cools, Japan's core machinery orders fall

Philippines' growth cools, Japan's core machinery orders fall

Growth in the Philippines slowed considerably during the second quarter of the year as policy decisions weighed down the economy.

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10.08.2018 11:43 PM

Growth in the Philippines slowed considerably during the second quarter of the year as policy decisions weighed down the economy. The 6% uptick recorded between April and June was short of expectations from analysts, and the medium-term outlook is being clouded by worries over inflation.

The Philippines has been one of the best-performing economies in emerging Asia for some time after recording growth in excess of 6.5% for ten successive quarters prior to Q2. Bloomberg analysts had expected the economy to expand again by 6.6% for the quarter, so the actual figure is a notable miss.

This result occurred because of certain policy decisions made earlier this year, particularly the closure of holiday island Boracay. The government decided to shutter Boracay for six months in April after President Rodrigo Duterte ordered a cleanup. Problems with sewage flushed by enterprises in the area had made it a “cesspool”. 

“The slowdown is partly due to policy decisions undertaken that are expected to promote sustainable and resilient development," the Philippines’ Economic Planning Secretary Ernesto Pernia said in a statement on Thursday. "We are referring to the temporary closure of Boracay."

The latest figures are a reality check for the Philippines’ seemingly unassailable growth momentum, but the 6% growth figure still puts it near the top of the economic table in Asia, with Vietnam and China being the only two nations to come in with better figures for the quarter at 6.8% and 6.7% respectively.

However, the Philippines is also contending with growing concerns over inflation after it inched upward to 5.7% last month, its highest rate since 2013. The central bank is ready to make moves to ease the pressure, with key interest rate raises likely to come into effect before Friday.

Pernia also revealed on Thursday that gross domestic product (GDP) was undercooked for the first quarter of the year. GDP was supposed to hit 6.8% between January and March but is now revised downward to 6.6%. This revision means that the economy expanded by 6.3% during the first six months of 2018, some way short of the 8% target for the full year.

Again touching on the impact of the Boracay shutdown, Pernia claimed that the popular tourist destination attracts 2 million visitors every year and adds around USD $1bn to the economy. The closure has made a “dent” in the economy, while a modest crimping in the growth of service exports has also had an impact.

Another concern is the agricultural industry, which saw just a 0.2% rate of growth during the latest quarter. Pernia said that the “almost stagnant output” is now a pressing issue and that inflation has been fueled by the “gross deficiency” in the amount of food produced domestically. Mining and industrial growth also eased during Q2.

In other economic news, Japan saw its core machinery orders drop off by 8.8% in June, the biggest fall this year. A Reuters poll had pegged the decline at 1.3% earlier this year, so the contraction is much bigger than expected, though the data series is generally very volatile.

A survey of manufacturers has forecast a 0.3% contraction in core orders during the third quarter as trade tensions continue to apply external pressure. “Machinery orders are moving in line with a temporary slowdown in global manufacturing activity,” Tokai Tokyo Research Centre Economist Hiroaki Muto said. “Japan’s economy will continue to grow but at a slightly slower pace. Trade friction is a risk, but there is no substantial impact so far.”

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