Philippine economy bucks global headwinds

(CNN) -- The Philippine economy grew 7.1% last quarter -- the fastest growth in two years and the fastest pace in Asia next to China -- a strong sign that the Southeast Asian economy is building domestic-growth rather than relying on exports.

Manila is bucking the global pressures of the eurozone debt crisis and the slowdown in China. The Philippines is the only nation whose expected growth has been raised by the International Monetary Fund, rather than revised down, IMF Chief Christine Lagarde noted while visiting Manila earlier this month.

"There is no denying it, the Philippines is having a fantastic year despite strong global headwinds," HSBC said in a research note Wednesday. "This is largely due to the fact that policy makers took timely measures to counterbalance an anticipated slowdown of demand from China and the eurozone as well as the resilient nature of the services-oriented economy."

The stronger-than-expected growth brings more good news for the administration of President Benigno Aquino III, who last month signed a landmark peace deal with Muslim rebel leaders that moves to end the long-running insurgency in the nation's troubled south.

A strong service sector, accelerated growth of the industry sector and better than expected agricultural output led grow, Socio-Economic Planning Secretary Arsenio Balisacan told reporters Wednesday. Household spending contributed more than half of the growth on the demand side, he added.

The 7.1% year-on-year growth in the third quarter was up from 6% growth in the second quarter. "Overall, we now expect the economy to expand by 6.3% this year, up from our previous forecast of 5.0%,"wrote Gareth Leather of Capital Economics in a research note. "Reflecting the economy's resilience, we are also raising our growth forecast for 2013 to 4.5%, up from 4.0% previously."

What is driving the Philippines' surprisingly strong growth?