By Neil Jerome Morales and Mikhail Flores
MANILA (Reuters) -The Philippine economy rebounded strongly in the third quarter, supported by a recovery in government spending, but higher interest rates and weak global growth could make it difficult to sustain the momentum.
Gross domestic product (GDP) grew by 5.9% in the September quarter from last year, surpassing the 4.7% forecast in a Reuters poll, helped by a turnaround in government spending offsetting a slowdown in household consumption.
Like many countries, the Philippines has been grappling with soaring inflation that has dampened demand and has forced the central bank to aggressively raise interest rates at the expense of growth.
With inflation still a major challenge, the central bank said on Thursday that policy would have to remain "tighter for longer", to anchor inflation expectations and reiterated it was ready to continue hiking rates if needed.
Annual inflation slowed for the first time in three months in October, to 4.9% from 6.1% the previous month, but the central bank said risks to the inflation outlook were leaning heavily to the upside.
"The BSP (central bank) is prepared for follow through actions as necessary to bring inflation back to a target-consistent path in keeping with its price stability mandate," Romeo Bernardo, a member of the central bank's monetary board told an economic forum.
The central bank resumed hiking rates last month, delivering an off-cycle 25 basis point hike on Oct. 26 after keeping rates steady at its last four scheduled rate-setting meetings to prevent inflation from getting out of hand. It next meets on Nov. 16.
Despite the economy's faster-than-expected expansion in the third quarter, Bernardo said the central bank expected a moderation in growth in the next few quarters due to weak global growth and tighter financial conditions.
He added the growth impact of higher interest rates would likely peak in the second half of 2024.
Before Bernardo spoke on Thursday, the country's economic planning secretary said he was upbeat about the economy's prospects, saying this year's 6%-7% growth target was "doable" as long as the government sustained robust spending and inflation continues to trend lower.
Government spending in the third quarter grew 6.7%, reversing the previous quarter's annual decline of 0.7%, outweighing weakness in household spending which grew at a slower pace of 5.0%, the weakest in two years and down from 5.5% in the second quarter.
On a quarter-on-quarter basis, GDP expanded 3.3%, beating economists' expectations for 2.0% growth and the previous quarter's 0.9% contraction.
Following the Philippines' better than expected third quarter, Capital Economics revised its full-year growth forecast this year to 5.0% from 4.0% previously, but it did not share Baliscan's optimism.
"With the drag from higher interest rates yet to filter through the economy in its entirety and global demand likely to weaken, we expect below trend and below consensus growth in the coming quarters," Capital Economics said in a note.
(Writing by Karen Lema; editing by Robert Birsel & Simon Cameron-Moore)
