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The upside is that the Philippine economy grew by a stunning 7.8 percent during the first quarter of the year, the fastest among the emerging economies in the Asia- Pacific region.
But the downside is that the country's stock market took a nosedive and the Philippine peso weakened in the aftermath of the strengthening of the U.S. dollar brought about by a slight but steady recovery of the U.S. economy.
According to the National Statistical Coordination Board (NSCB), the better-than-expected growth of the country's gross domestic product (GDP) was the result of increased consumer demand which in turn triggered the expansion of the manufacturing and construction sectors.
Arsenio M. Balisacan, director general of the National Economic and Development Authority (NEDA), the government's economic policy- making body, said the growth was fueled by business confidence on the Philippines and consumer optimism.
The growth was achieved even though the country's exports contracted in the first quarter, primarily because of a decrease in foreign demand for electronic components.
Balisacan said the first quarter growth was the second fastest growth rate for the Philippines since the 8.9 percent growth recorded in the first quarter of 2010 during the term of former President Gloria Macapagal-Arroyo.
According to the NSCB, the country's first quarter growth outpaced China's 7.7 percent, Indonesia's 6 percent, Thailand's 5. 3 percent and Vietnam's 4.9 percent.
Economist Cid L. Terosa of the University of Asia and the Pacific said that election spending and consumption contributed a lot to the first quarter growth.
"To sustain it, consumption spending must be supported by strong investment spending, trade performance and sustained remittance inflows," Terosa said.
The country held its mid-term elections on May 13 but local politicians spent millions of pesos since the start of the campaign in January triggering a rise in consumer spending.
This was also true in the first quarter of 2010 when presidential elections were held in May of that year that also resulted in increased consumer spending and higher GDP growth thereof.
While the GDP growth was announced by the NSCB on Thursday, the local stock market suffered its worst "bloodbath" in two years as high risk aversion across the region all but eclipsed the positive economic growth data.
The main Philippine Stock Exchange index (PSEi) lost 275.22 points, or 3.81 percent, to close at 6,953.35. This marked the PSEi's worst single-day decline since Sept. 21, 2011, when the index slumped by 4.2 percent at the height of the European fiscal crisis.
The plunge though is primarily caused by external factors, notably the prospects that the U.S. Federal Reserve would temper its liquidity-inducing bond buyback program that has perked up markets across the globe.
"While the GDP figure was a positive surprise, the market was not able to sustain the short knee-jerk positive reaction to the surprise GDP numbers. At the core is higher risk aversion, as evidenced by a blip in 10-year bond yields overnight," UBS Securities Philippines said in its daily commentary.
The UBS also said the depreciation of the peso -- which has weakened by 3 percent against the U.S. dollar so far this month -- likewise induced the stock market pullback.
On Thursday, the peso closed at 42.32 against the U.S. dollar, up by 12 centavos from Wednesday's finish and the 11-month low of 42.44 to the greenback.
According to the Bangko Sentral ng Pilipinas, the country's central bank, the weakening of the peso was not worrisome. In fact, in a sense, the BSP welcomed it.
Reports quoted BSP Governor Amando Tetangco Jr. as saying that the exchange rate of 42 pesos to a dollar still reflects market confidence in the Philippine economy.
"The peso continues to be supported by fundamentals," Tetangco told reporters, adding that the BSP has to contend with losses due to the local currency's appreciation during the last few years.
Last year, with the strengthening of the peso, the BSP was forced to engage in heavy dollar buying to prevent an even steeper rise of the local currency. This has resulted in a huge net loss for the BSP last year.
Tetangco also said that the Philippines was unlikely to suffer from significant flight of capital even as the U.S. economy improved. This is because the Philippines continued to show an encouraging economic performance, he said.
Despite the impressive growth figures, the Philippines faces many challenges ahead, among them the global slowdown, excessive capital inflows and natural disasters.
"Disasters can negate the gains and even push back development. Moreover, the global economy remains fragile, negatively affecting our trade performance," Balisacan said.
