Inflation, high interest rates spoil Philippine economic growth in Q2

MANILA, Philippines (Updated 10:55 a.m.) — The Philippine economy expanded at a slower pace in the second quarter, missing expectations as rising consumer prices and rate hikes meant to tame inflation weighed on growth.

Gross domestic product expanded 4.3% year-on-year in the April-June period, a sluggish pace compared to the 6.4% growth recorded in the first quarter, the Philippine Statistics Authority reported Thursday.

The latest figure was below market expectations. A BusinessWorld poll of 21 economists had pegged growth in the second quarter at 6%.

“For the second quarter, the moderate economic expansion was driven by increases in tourism-related spending and commercial investments, but was tempered by high commodity prices, the lagged effects of interest rate hikes, the contraction in government spending, and slower global economic growth,” the economic manegers said in a joint statement.

The second quarter reading also put the government away from its target this year. In the first half, GDP growth averaged 5.3%, way below the Marcos administration’s goal of 6-7%.

Economic managers said their growth target is still “attainable”. To achieve that, the country’s GDP would have to grow by at least 6.6% in the second half of 2023.

Data showed consumer spending, a major growth driver, contracted by 1.0% quarter-on-quarter as spending on clothing and restaurants dropped.

Gareth Leather, senior Asia economist at London-based Capital Economics, said consumption is “set to remain weak in the coming quarters”.

Government spending, meanwhile, dropped 5.2% on a sequential basis.

“On the plus side, falling inflation will boost the purchasing power on households,” Leather said in a commentary.

“Despite the weakening economy, concerns about elevated core inflation mean the central bank is unlikely to start cutting interest rates imminently. We think the BSP will start loosening policy only in early 2024,” he added.