Beating expectations, Philippines posts faster Q3 growth despite inflation

MANILA, Philippines — The Philippine economy managed to squeeze out a modest growth in the third quarter, beating expectations of a slower expansion in the face of boiling inflation.

Gross domestic product (GDP) grew 7.6% year-on-year in the July-September period, the Philippine Statistics Authority reported Thursday.

The latest reading was slightly faster compared to the upwardly revised 7.5% expansion recorded in the previous quarter. It was also way past market expectations of a 6.1% growth.

Quarter-on-quarter, the PSA said GDP grew 2.9%, a turnaround from 0.1% contraction posted in the preceding quarter.  

READ: No reprieve for Filipinos as inflation boils to over 10-year high in October

That the economy grew slightly faster last quarter came as a surprise as consumer spending, a major growth engine, feels the heat of sizzling inflation. Data showed household final consumption expenditure grew 8.0% year-on-year in the third quarter, slower than 8.6% recorded in the preceding three months.

Three subsectors that was responsible for last quarter’s growth: restaurants and hotels, transport, and food. The PSA reckoned that consumer spending hit P10.37 trillion in the first nine months, accounting for 73% of GDP.

Consumer spending did all the heavy-lifting while government support fades. Data showed government spending sharply slowed to 0.8% annually in the third quarter from 11.1% in the second quarter. Speaking to reporters, Socioeconomic Planning Secretary Arsenio Balisacan said the national government downloaded much of its spending earlier in the first half of the year. This meant, there were fewer public resources available to spend.

Nicholas Mapa, senior economist at ING Bank in Manila, said Filipinos are likely extending so-called “revenge spending” activities after almost two full years under lockdowns. This, despite an elevated inflation that’s pushing up the cost of living.

“One explanation would be overseas Filipino remittances which may be supercharged by a more favorable exchange rate.  However we believe that consumers are also digging deeper into savings, which unfortunately have yet to return to pre-Covid levels,” Mapa said in an e-mailed commentary.

“For now, it appears that households can fund extended revenge spending activities by drawing down on savings for a little longer however this could increase their vulnerability to potential shocks to income down the road,” he added.

Leonardo Lanzona, an economist at Ateneo De Manila University, shared the same view. “Perhaps people had started hoarding in anticipation of higher prices,” he said.

The Bangko Sentral ng Pilipinas had projected in August that inflation would peak by September or October, but the latest data showed that might not be the case. The PSA earlier reckoned price growth would accelerate further in November, as the damage wrought by recent typhoons has yet to be priced in.

Despite the inflation onslaught, the Marcos administration is still on track to meet its watered-down goal. In the first nine months of the year, GDP averaged 7.7%, above the government’s 6.5-7.5% target for 2022.

Domini Velasquez, chief economist at China Banking Corp., said this would strengthen the case for another set of interest rate hikes. The benchmark rate is now at 4.25% and is expected to soar higher as the BSP vows to match the US Federal Reserve’s aggressive rate hikes.

 “It also provides more room for wiggle room for the BSP to raise rates by at least 6% without slowing growth too much,” she said in a Viber message.

READ: BSP readies for another jumbo rate hike to match aggressive US Fed