Guess Which Country Is Growing Faster Than China?

Makati City in Manila, Philippines
Dondi Tawatao | Getty Images
Makati City in Manila, Philippines

Southeast Asia's "rising star", the Philippines, stunned investors with first quarter growth numbers that outpaced that of even economic powerhouse China.

Bucking the trend of regional weakness - with neighboring countries such as Malaysia and Thailand recently reporting disappointing growth figures - the Philippines' economy grew 7.8 percent in the first three months from a year earlier against expectations for a rise of just 6 percent.

In year-on-year terms, the economy expanded at a quicker pace than China for the first time since the latter began publishing quarterly GDP data in 1994, according to ANZ. China's economy grew 7.7 percent in the January-to-March period as the momentum of the country's recovery unexpectedly slowed.

"This print is comfortably the fastest first-quarter GDP growth print across the non-Japan Asia," Michael Wan, economist at Credit Suisse, wrote.

Growth was powered by private consumption, government spending and fixed capital investment, which helped to offset weakness in the export sector.

"It is heartening to note that the quality of growth was also good, in that investment is becoming a much more important driver of growth, in a country where infrastructure spending still lags behind its peers in the region," Wan said.

Higher investment spending is in turn necessary to support longer term growth in the country, he noted.

And economists expect the economy to remain resilient going forward, supported by increased investment.

"After receiving two investment grade upgrades from major credit rating agencies, we expect private investment to be supported. The recent increase in momentum of foreign direct investments points to investor confidence," Roland Randall, senior economist, Asia Pacific at ANZ wrote.

(Read More: S&P Raises Philippines to Investment Grade, Second After Fitch)

In March, Fitch Ratings raised the country's credit rating to investment grade,with Standard and Poor's doing the same earlier this month.

ANZ, which currently forecasts the economy will grow 6.2 percent in 2013, said there are now upside risks to its outlook.

Despite the stellar growth numbers, however, Philippines shares closed down 3.8 percent on Thursday.

But, Credit Suisse believes this is a temporary correction that offers a good buying opportunity.

(Read More: Fitch Upgrade of Philippines a 'Seal of Good Housekeeping')

"The local equity market is in the process of correcting right now, after an extraordinary run, but our Philippines equity strategist called for this and has argued that it will represent a buying opportunity."

By CNBC's Ansuya Harjani