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By Neil Jerome Morales and Enrico Dela Cruz

MANILA, May 12 (Reuters) – The Philippine economy grew faster than expected in the first quarter, giving the central bank scope to tighten monetary policy to tackle rising inflation, among the most pressing issues for the country’s newly-elected president.

The Bangko Sentral ng Pilipinas (BSP) holds its next policy meeting on May 19, with some analysts seeing higher chances for an interest rate hike as soaring inflation threatens to dampen consumer sentiment and derail the economic recovery.

The Southeast Asian country’s gross domestic product PHGDP=ECI rose 8.3% in the March quarter from a year earlier, faster than the 7.7% pace in the previous quarter, and above 6.6% growth forecast in a Reuters poll.

It was the fastest annual growth in three quarters, or since the June quarter of 2021 when it expanded 12.1%.

On a seasonally adjusted basis, the economy grew 1.9% in January-March from the previous quarter, the government said on Thursday.

Consumption climbed 10.1% as the government eased COVID-19 curbs after new daily cases dropped and with election-related spending adding a further boost. Government spending rose 3.6%.

But while the domestic economy appears to be on a solid footing, analysts say surging inflation and political risks in the Philippines could pose a problem for the economy as it recovers from the pandemic.

“A further surge in energy prices and rising political uncertainty pose downside risks to growth,” economists at Nomura said in a note.

The newly-elected president, Ferdinand Marcos Jr, will take the helm next month when current leader Rodrigo Duterte steps down.

Despite his decisive victory, however, Marcos’ economic agenda remains vague and he is a polarising political figure because of his dictator father’s brutal 20-year rule marred by widespread human rights abuses and plunder. nL3N2X12D7

(Additional reporting by Karen Lema; Editing by Jacqueline Wong)

((enrico.delacruz@tr.com))

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By Neil Jerome Morales and Enrico Dela Cruz

MANILA, May 12 (Reuters) – Newly-elected Philippine President Ferdinand Marcos Jr. will inherit an economy that has strongly bounced back from the COVID-19 pandemic when he takes office in June, but soaring food and fuel costs will need to be addressed quickly.

Southeast Asia’s fifth-largest economy grew a better-than-expected 8.3% in the first quarter PHGDP=ECI, the government said on Thursday. It was the fastest annual growth since the June quarter of 2021 when it expanded 12.1% and exceeded a 6.6% forecast in a Reuters poll.

That growth rate made the Philippines the fastest growing economy in the East Asia Region for the period, officials said.

On a seasonally adjusted basis, the economy grew 1.9% in January-March from the previous quarter PHGDPQ=ECI, with the easing of COVID-19 curbs and election-related spending underpinning domestic demand.

That gives the central bank scope to raise interest rates to tackle rising inflation, which threatens to dampen consumer sentiment and derail the economic recovery.

“Since we are doing relatively well on the economic opening as evidenced by the Q1 data, the immediate priority is to address inflation, especially those that affected people the most, food prices,” Economic Planning Secretary Karl Kendrick Chua told a news conference.

The Bangko Sentral ng Pilipinas (BSP) holds its next policy meeting on May 19, with some analysts seeing higher chances for an interest rate hike.

“With GDP now back to pre-COVID levels and with inflation accelerating, we fully expect BSP to hike policy rates at the May 19 meeting,” said ING senior economist Nicholas Mapa.

Economists have raised concerns the BSP, which has kept benchmark interest rates steady since November 2020 at record lows PHCBIR=ECI, could fall behind the curve as central banks around the world step up monetary tightening to fight inflation.

Governor Benjamin Diokno, however, has flagged a possible hike in June, with the BSP looking at raising rates two to three times to bring down inflation by next year. nL2N2WO0YVnL2N2WX01U

REFORMS AND FISCAL PRUDENCE

To sustain the growth momentum, Chua also urged the next administration to pursue further tax reforms, continue fiscal prudence and boost tax revenues needed to finance infrastructure projects and human capital development.

Boosting tax revenue is crucial as Marcos must tackle the problem of heavy public debt bloated by heavy borrowings to finance the government’s pandemic measures.

“A majority mandate on top of sizable political capital opens the door for opportunities for Marcos to implement substantial economic reforms early on in his single six-year term,” ING’s Mapa said.

Marcos, who clinched a decisive victory in Monday’s election, said he would hit the ground running as president and was looking very carefully at candidates for his economic team, with infrastructure, jobs and energy prices his priorities. nL2N2X30WM

Another pressing issue is the need to widen face-to-face learning as schools reopen, Chua said, a key challenge for the education department, which will be under the supervision of newly-elected Vice President Sara Duterte-Carpio, daughter of the current president.

Students have faced setbacks due to lack of access to computers and patchy internet during 20 months of online learning.nL2N2X30WM

(Additional reporting by Karen Lema; Editing by Jacqueline Wong)

((enrico.delacruz@tr.com))

Adds cbank comment in sixth paragraph

By Neil Jerome Morales and Enrico Dela Cruz

MANILA, May 12 (Reuters) – Newly-elected Philippine President Ferdinand Marcos Jr. will inherit an economy that has strongly bounced back from the COVID-19 pandemic when he takes office in June, but soaring food and fuel costs will need to be addressed quickly.

The Southeast Asian nation’s economy grew a better-than-expected 8.3% in the first quarter PHGDP=ECI, the government said on Thursday. It was the fastest annual growth since the June quarter of 2021 and exceeded a 6.6% forecast in a Reuters poll.

On a seasonally adjusted basis, the economy grew 1.9% in January-March from the previous quarter PHGDPQ=ECI, with the easing of COVID-19 curbs and election-related spending underpinning domestic demand.

The Philippines thus was the fastest growing economy in the East Asia Region for the period, officials said.

That gives the Bangko Sentral ng Pilipinas (BSP) scope to raise interest rates to tackle rising inflation, which threatens to dampen consumer sentiment and derail the economic recovery.

“The BSP stands ready to adjust our monetary policy settings, should we see material risk of these supply-side pressures spilling over to the demand side,” BSP Governor Benjamin Diokno said following the data release. nP9N2VA00D

The BSP holds its next policy meeting on May 19, with some analysts seeing higher chances for an interest rate hike as early as its May 19 meeting.

“With GDP now back to pre-COVID levels and with inflation accelerating, we fully expect BSP to hike policy rates at the May 19 meeting,” said ING senior economist Nicholas Mapa.

Diokno, however, has flagged a possible hike in June, and he said the BSP was looking at raising rates two to three times to bring down inflation by next year. nL2N2WO0YVnL2N2WX01U

Economists have raised concerns the BSP, which has kept benchmark interest rates steady since November 2020 at record lows PHCBIR=ECI, could fall behind the curve as central banks around the world step up monetary tightening to fight inflation.

“Since we are doing relatively well on the economic opening as evidenced by the Q1 data, the immediate priority is to address inflation, especially those that affected people the most, food prices,” Economic Planning Secretary Karl Kendrick Chua told a news conference.

REFORMS AND FISCAL PRUDENCE

To sustain the growth momentum, Chua also urged the next administration to pursue further tax reforms, continue fiscal prudence and boost tax revenues needed to finance infrastructure projects and human capital development.

Boosting tax revenue is crucial as Marcos must tackle the problem of heavy public debt bloated by heavy borrowings to finance the government’s pandemic measures.

“A majority mandate on top of sizable political capital opens the door for opportunities for Marcos to implement substantial economic reforms early on in his single six-year term,” ING’s Mapa said.

Marcos, who clinched a decisive victory in Monday’s election, said he would hit the ground running as president and was looking very carefully at candidates for his economic team, with infrastructure, jobs and energy prices his priorities. nL2N2X30WM

(Additional reporting by Karen Lema; Editing by Jacqueline Wong and Raissa Kasolowsky)

((enrico.delacruz@tr.com))