Philippines overtakes Malaysia, Vietnam to become Southeast Asia’s fastest growing economy

While the annual pace of expansion is slower than the Philippine government’s 6 to 7 per cent target, it is the fastest pace in the region so far
Malaysia’s economy, which posted Southeast Asia’s quickest growth in 2022 at 8.7 per cent, likely slowed to 3.8 per cent last year, economists say

The Philippines

Bloomberg

Published: 3:03pm, 31 Jan 2024

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The Philippines overtook Vietnam and Malaysia to become Southeast Asia’s fastest-growing economy last year, with expansion driven by consumption, services and investment.

Gross domestic product expanded 5.6 per cent, surpassing the median 5.5 per cent growth seen in a survey of economists. The economy grew at a similar pace from a year ago in the final quarter of the year, while on a quarter-on-quarter basis, it clocked 2.1 per cent.

Stocks extended their gains to more than 1 per cent after the data. The peso held its loss, with the currency slipping 0.1 per cent against the US dollar.

A conductor handles peso bills and coins in Caloocan City, the Philippines. Photo: Bloomberg

While the annual pace of expansion is slower than the government’s 6 to 7 per cent target, it is the fastest pace in the region so far – overtaking Vietnam’s 5.05 per cent performance. Malaysia’s economy, which posted Southeast Asia’s quickest growth in 2022 at 8.7 per cent, likely slowed to 3.8 per cent in 2023. Indonesia and Thailand are set to report economic data next month.

National Economic and Development Authority Secretary Arsenio Balisacan told reporters on Wednesday the government was confident that the economy would expand at a pace of 6.5 to 7.5 per cent in 2024 – which will help the Philippines retain the region’s top growth tag.

That echoes the optimism of President Ferdinand Marcos Jnr about the consumption-driven economy’s prospects, as inflation cools and the central bank halts one of the region’s most aggressive interest-rate tightening campaigns.

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Still, sustaining the stellar performance requires heavy lifting by the government, given monetary policymakers are unlikely to pivot to easing any time soon amid lingering price risks.

The Southeast Asian nation, where consumption accounts for about 75 per cent of GDP, also faces growing geopolitical risks amid tense relations with China over the South China Sea. Domestic political noise has also risen as Marcos and his predecessor Rodrigo Duterte traded drug-use accusations this week.

“Any country that has political instability will hurt the economy,” Balisacan said when asked to comment about the widening rift between Marcos and Duterte.

While government spending declined 1.8 per cent in line with fiscal consolidation efforts, Balisacan said he expected services expansion to continue pacing the economy’s growth trajectory.

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Even as consumption has remained resilient, a sluggish global economy, elevated inflation and interest rates stand in the way of a significant improvement in growth prospects this year, said Robert Dan Roces, chief economist at Security Bank Corp. in Manila. “The growth momentum now falls on government spending,” he said.

Even as inflation in December slowed to within the central bank’s 2 to 4 per cent target band after 21 months, rate hikes aren’t fully off the table amid rising food prices. Any further tightening by the central bank could upend the consumption-led recovery in the economy.

Governor Eli Remolona earlier this month said that strong economic growth gives policymakers “a bit more room to hike”.

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