3 reasons why Philippines' 2012 performance was brilliant

2012 growth was an excellent 6.6%.

According to DBS, 2012 was a stellar year for the economy. 4Q GDP growth reached 6.8% YoY, significantly outperforming consensus expectations (6.3%), taking full-year growth to an impressive 6.6%.

Sequentially, growth accelerated to 1.8% QoQ sa, from 1.3% in the preceding quarter, shrugging off any impact from a lackluster global economy. This comes in stark contrast to 2009 when the Philippine economy was dragged down by weak global growth. There are three key reasons for the economic resilience this time round, DBS said:

Firstly, non-electronics manufacturing was able to offset the slump in electronics. Overall, although manufacturing output numbers underperformed the broader economy, things are nowhere as bad as in 2009.

Secondly, the services sector have held up very well, with the financial intermediation and the real estate, rent & business activities components registering growth of 7.2% YoY and 7.7% YoY respectively. Despite increased government spending, growth in public service remains a laggard at 6.1%.

Thirdly, a construction revival is currently underway and growth in this sector hit 19.5% YoY in 2H. On the demand side, annual gross fixed capital formation and government consumption numbers for 2012 were both markedly stronger compared to 2011.

Positive momentum is expected to spill over into 2013 and we have revised up our GDP growth forecast from 5.3% to 6.0%. Notably, conditions remain very conducive for economic growth.

With inflation still staying low, there is no urgency for the central bank to raise interest rates, especially when dealing with inflows remains the primary concern.

This will facilitate investment (including the PPP projects) and consumption growth over the medium term. Moreover, upcoming elections in mid-2013 imply that government spending will be elevated for the first half of the year.

On the external front, exports should get a lift from stabilization in the major economies and acceleration in the Chinese economy.