Economic growth likely slowed in Q3

MANILA, Philippines — The country’s gross domestic product (GDP) growth likely slowed in the third quarter after easing to 7.4 percent in the second quarter from 8.2 percent in the first quarter, as inflation continues to bite, according to economists.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the GDP expansion likely slowed to 5.7 percent from July to September.

While the bank’s forecasts continue to support the upbeat momentum spawned by the reopening of the economy and improved mobility since the start of the year, Asuncion said the anticipated sharp third quarter GDP deceleration could be traced to the erosion of broad purchasing power due to surging inflation in the last quarter.

Asuncion also cited the limited fiscal contribution to growth as well as the damage caused by Typhoon Karding.

The economist of the Aboitiz-led bank said financial market signals from peso depreciation and the lackluster Philippine Stock Exchange index (PSEi) were hardly uplifting.

According to Asuncion, risk narratives include hawkish central banks’ rate hike expectations, including that of the Bangko Sentral ng Pilipinas (BSP), as policy rates chase rising inflation rates and trajectories, as well as the purchasing power of domestic-oriented businesses and industries depleted by elevated fourth quarter inflation outlook.

Asuncion also said the dollar is expected to remain strong due to the hawkish US Federal Reserve, driven by US or global recession risks, and amplified by the recent downgrade by the International Monetary Fund (IMF) of the 2023 global economic forecasts and the sustained weakness in the China-centric regional trade.

Asuncion said other factors include the limited fiscal stimulus in the Philippines because of tight fiscal space to spend, softer oil price outlook, as well as other spillovers from ongoing geopolitical risks and COVID challenges.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the GDP expansion likely slowed to six percent in the third quarter.

Ricafort said measures to further reopen the economy fundamentally served as the biggest boost to the economy, given the relatively low base versus a year ago.

He said any incremental growth came from the further pick-up in both local and foreign tourism, resumption of face-to-face classes, continued growth in foreign direct investments, remittances from overseas Filipino workers, business process outsourcing revenues and exports, among others.

However, Ricafort said risk factors, such as the higher consumer prices, would still eat into the GDP growth for the third and fourth quarters, similar to the second quarter.

According to Ricafort, the seasonal increase in business/economic activities in the fourth quarter, in view of the Christmas and New Year holidays would lead to greater spending by consumers, businesses, government, and other institutions.

The Yuchengco-led bank sees the country’s GDP growth picking up to a range of 6.5 to seven percent this year.

China Bank chief economist Domini Velasquez said the GDP expansion from July to September likely decelerated to 6.2 percent as dimmer outlook and high inflation rate environment likely weighed on economic activities.

In terms of sector, Velasquez said services likely grew robustly although at a slower rate than the second quarter due to the rebalancing of post-pandemic normalization and higher inflation.

“On a positive note, tourist arrivals improved in the third quarter, contributing to consumption of services such as air transport, accommodation and the like,” Velasquez said.

“Moving forward, we expect growth to further slowdown in the coming quarters and for GDP growth next year to fall short of the government’s 6.5 to eight percent target. A global slowdown, aggressive monetary tightening, and reduced government spending will temper growth in 2023,” she said.

Khoon Goh, head of Asia Research at ANZ, said the Philippine GDP growth likely grew by 6.6 percent in the third quarter, led by yet another quarter of healthy domestic demand.

Goh said improvement in the labor market, strong remittances flow in real terms as well as the solid demand for household credit in the third quarter supported private consumption growth.