Full-year target now harder to hit – economists

As Q2 growth disappoints

MANILA, Philippines — The growth target set by the economic managers of the Marcos administration this year is now harder to reach after the release of disappointing numbers for the second quarter, private economists said.

ING Bank senior economist  Nicholas Mapa said the six to seven percent gross domestic product (GDP) growth target set by the Development Budget Coordination Committee (DBCC) is likely no longer achievable.

On Thursday, the government reported that the country’s GDP growth slowed further to 4.3 percent, way below the market’s six percent consensus, from 6.4 percent in the first quarter.

“Year-to-date growth slowed to 5.3 percent, much lower than the government’s target of six to seven percent growth, which now looks out of reach given our expectation for growth to slow further in the coming quarters,” Mapa said.

On a quarter-on-quarter basis, Mapa said the economy contracted by 0.9 percent as high inflation and the lagged impact of previous monetary tightening weighed on economic activity.

“This was the slowest pace of expansion since 2011, with growth momentum slowing due to a challenging global landscape, price pressures, lackluster fiscal stimulus and elevated borrowing costs,” he said.

The Bangko Sentral ng Pilipinas (BSP) hiked key policy rates by a cumulative 425 basis points since May last year, but adopted a prudent pause as it kept interest rates on hold in May and June due to the inflation downtrend and stable peso.

“Overall, this was a disappointing report with the slowdown evident in all major sectors of the economy,” he said.

According to Mapa, household consumption posted a slower growth of 5.5 percent in the second quarter from 6.4 percent in the first quarter as a combination of fading revenge spending on top of an unfavorable base effect capped household consumption.

He said the aggressive tightening carried out by the BSP last year to tame inflation and stabilize the local currency weighed on capital formation, with overall investment outlays unchanged from last year.

Likewise, government spending, which had been an important source of support throughout the COVID-19 pandemic, declined by 7.1 percent.

Global banking giant Citi slashed its GDP growth forecasts for 2023 and 2024 following the slower momentum.

Nalin Chutchotitham, economist for the Philippines at Citi, said it has lowered its forecasts for the Philippines to 5.2 percent from 5.9 percent for this year and to 5.9 percent from 6.1 percent for next year.

The revised projections are well below the six to seven percent and 6.5 to eight percent GDP growth target penned by economic managers for 2023 and 2024, respectively.

“We revise down the 2023 GDP growth forecast to 5.2 percent from 5.9 percent earlier, mainly from the disappointing second quarter results. It appears that high inflation and policy rate hikes had a larger-than-expected impact on growth than were evident in some of the high-frequency indicators that remained strong,” Chutchotitham said.

Citi expects GDP growth to gradually pick up pace in the second half,  as easing inflation and continued strength in the labor market and minimum wage hikes may support consumer spending.

However, Chutchotitham said the global economic slowdown and potential impact of El Nino on agriculture production could dampen the growth outlook for the second half of 2023 and in 2024.

“For 2024, we also lower the GDP growth forecast to 5.9 percent from 6.1 percent, following slower momentum in 2023,” Chutchotitham said.

Former finance undersecretary Romeo Bernardo, country analyst at New York-based GlobalSource Partners, said the Philippines is likely to miss its growth target for this year amid external and domestic headwinds.

In a commentary, Bernardo said the Philippine economy needs to accelerate to 6.6 percent in the second half from 5.3 percent in the first half in order to reach the lower end of the government’s six to seven percent target.

“We will be revisiting our 5.5-percent growth forecast for the year in our upcoming forecast update. At this time, we still think that 5.5 percent is attainable but it looks more like an upper limit,” Bernardo said.

Bernardo said the economy should grow by more than 5.6 percent in the second half to meet the growth forecast set by the New York-based think tank.

Meanwhile, BMI Country Risk & Industry Research said that its 5.9 percent GDP growth forecast for the Philippines now looks too upbeat after the expansion slowed significantly to 4.3 percent in the second quarter from 6.4 percent in the first quarter of the year.

The research arm of the Fitch Group said the Philippine economy needs to grow by at least 6.5 percent to meet the lower end of the government’s six to seven percent growth target.

“But the economic rebound over the coming quarters will probably be much weaker,” BMI warned.

It added that the external sector would provide little support to the economy in the second half as global demand is expected to remain lackluster with the global GDP growth slowing to 2.4 percent this year from 3.1 percent last year.