* GDP in the 2nd quarter grows by 11.8% per year, shrinks by 1.3% qtr./qtr
* Q2 year / year growth fastest since Q4 1988
* GDP key rate stable at record low on Thursday (Adds comments from economists)
MANILA, Aug 10 (Reuters) – The Philippine economy grew with the fastest annual growth in over three decades in the second quarter, recovering from a COVID-induced slump a year ago.
The gross domestic product (GDP) rose in the June quarter by 11.8%, the largest year-on-year increase since the fourth quarter of 1988, said the statistics agency on Tuesday.
The Filipino economy has exited the recession after five consecutive quarters of contraction. In a Reuters poll, economists expected GDP to rise 10% year over year in the second quarter.
However, the economy contracted by a seasonally adjusted 1.3% in the April-June period, after having grown by 0.3% in the previous quarter.
The figures come ahead of the policy review by Bangko Sentral ng Pilipinas (BSP) on Thursday. Before the GDP data was released, it was widely expected that the central bank would keep the key rate at a record low of 2.0%.
“The robust performance is driven by more than just base effects. It is the result of a better balance between fighting COVID-19 and the need to restore people’s jobs and incomes, ”said Karl Chua, Minister for Socio-Economic Planning.
Household consumption rose 7.2% in the second quarter after a COVID-induced slump a year ago, but government spending fell 4.9% – the first year-on-year decline since 2017.
The industrial and service sectors grew by 20.8% and 9.6% respectively from the second quarter of 2020, while agriculture, forestry and fisheries contracted by 0.1%.
The economy will need to grow 8.2% in the second half of the year to hit the lower end of the government’s 6.0-7.0% growth target for the full year, said Dennis Mapa, chief of the Philippine Bureau of Statistics.
Economists say this seems increasingly unlikely as tightened restrictions cloud the economic outlook. The government reintroduced movement restrictions in the greater Manila area and some provinces from August 6, as infections have risen in the country with the second worst coronavirus outbreak in Southeast Asia.
In the Philippines, cases have increased at a rate of about 8,000 to 10,000 per day in the past few weeks, which is above the daily average of 5,700 cases reported in the last month.
Capital Economics cut its growth forecast for 2021 from 6% on Tuesday to 5%. ANZ said it cut its full-year growth forecast last week from 4.8% to 4.2%.
“The COVID cases increased again from July to August and subjected the capital region to strict restrictions. This will have an impact on the growth prospects for the second half of the year, although the pace of vaccination has improved recently, ”ANZ analysts said in a note.
While they said the “real burden of economic recovery is on fiscal policy” and expects the central bank to maintain its accommodating stance, Capital Economics is betting on further monetary easing.
“The weakness of the recovery increases the chances that the central bank will cut rates again,” said Alex Holmes, an economist at Capital Economics. (Writing by Enrico Dela Cruz; editing by Ana Nicolaci da Costa)