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Philippine President Duterte caps first six months with solid growth, popularity on crime fight

People walk through market stalls at the Carriedo district in Manila, Philippines on Tuesday, 22 November 2016.
Richard James Mendoza | NurPhoto | Getty Images
People walk through market stalls at the Carriedo district in Manila, Philippines on Tuesday, 22 November 2016.

President Rodrigo Duterte concluded his first six months in office on a positive note as the Philippines saw one of the fastest growth rates in Asia in 2016, carrying over economic reforms from the previous government even as he burnishes a law-and-order image in a brutal extrajudicial crackdown on drug use.

Data published on Thursday by the Philippine Statistics Authority showed the economy grew by 6.8 percent for the year, with a 6.6 percent growth in gross domestic product (GDP) for the October-December quarter.

The fourth-quarter saw the slowest pace of growth for the full year, which analysts attributed to weak agricultural production resulting from a series of typhoons and also from the lack of a one-time boost from election spending in the first half of the year.

But the quarterly growth was higher than the 6.5 percent print from a year earlier.

Key drivers of growth for the quarter were manufacturing, trade, real estate, renting and business activities, according to the Statistics Authority, while the industrial sector saw the fastest growth at 7.6 percent on-year.

"The current government has sustained the economic policies that have been responsible for a trend growth of 6.2 percent in the last six years," Joey Cuyegkeng, senior economist at ING, told CNBC by email, adding, "The economic team is also a solid team and has significant influence on the President's economic decisions."

Also guiding Duterte's economic decisions is a 10-point economic plan, announced last June, which includes tax reforms, liberalizing foreign direct investments and increasing infrastructure spending to prop up domestic growth and fuel private consumption, which accounts for 70 percent of the economy.

But Duterte has also swung away from earlier policies on close ties with the former U.S. president Barack Obama over disputed islands that Beijing claims in the South China Sea and via the crackdown on drugs that has boosted his popularity even as reports and official figures suggest nearly 6,000 have died since the war on drugs began in July, out of which 3,841 were vigilante-style killings.

His relationship with Donald Trump is yet to be tested, but the large domestic market somewhat insulates the Philippines against international developments, such as the protectionist pivot of the new U.S. president.

But comparisons between the two tough-talking politicians have been made, particularly the emphasis on combating crime with a heavy hand.

On trade and economics though there may be a gap.

Since taking office, Trump signed an executive order to formally pull the United States out of the 12-member Trans Pacific Partnership agreement and vowed to renegotiate existing free trade agreements. The lack of support from the U.S. makes the long-term viability of the TPP deal an uphill task, and could spell bad news for trade-dependent countries in the region.

The Philippines was not a part of the TPP.

"We are not much of an export-dependent country compared to Japan and even Hong Kong," Lexter Azurin, assistant VP and head of equity research at Unicapital Securities, told CNBC's "Squawk Box" on Thursday.

But he added that Duterte's recent pivot toward China, and away from traditional ally the U.S., was timely and would result in a limited impact on the economy in general.

Duterte will visit China in May to attend a multilateral summit, according to Reuters, making it his second visit to Beijing since he took office, after he publicly berated the U.S. and made overtures toward Beijing.

Reuters also reported the Economic Planning secretary in the Philippines, Ernesto Pernia, said it is "highly likely" the country will achieve its 6.5-7.5 percent economic growth target for this year.

But, in order to continue the robust growth in the economy, the government needs to continue pushing for infrastructure spending and other related programs in 2017, according to analysts.

"What investors really want is sustainability in terms of economic growth," Azurin said, adding the government needed to roll out contracts that are in the pipeline. "Once we see that start to push through, this would definitely sustain economic growth."

ING's Cuyegkeng added the government needed to find ways to bring the benefits of the robust growth figures to a broader demographic and expand economic and social programs without compromising the Philippines' sound fiscal position.

"More political capital of the leadership behind economic reforms would likely be rewarded with gains in the Philippine financial markets and ensure sustained relatively high level of economic expansion," he said.

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