10-8-2023 (MANILA) The Philippine economy experienced a deceleration in growth during the second quarter, falling short of expectations as increasing consumer prices and interest rate hikes aimed at curbing inflation weighed on overall expansion.
According to the Philippine Statistics Authority’s report on Thursday, the country’s gross domestic product (GDP) grew by 4.3% year-on-year in the April-June period. This rate of growth was notably slower compared to the 6.4% recorded in the first quarter.
The latest figure fell below market expectations, as a BusinessWorld poll of 21 economists had projected second-quarter growth to be at 6%.
In a joint statement, economic managers acknowledged that the moderate economic expansion in the second quarter was driven by higher spending in the tourism sector and increased commercial investments. However, this growth was tempered by the impact of high commodity prices, the delayed effects of interest rate hikes, a contraction in government spending, and slower global economic growth.
The second-quarter reading also moved the government further away from its target for the year. In the first half, the average GDP growth stood at 5.3%, significantly below the administration’s goal of 6-7% set by the Marcos administration.
Despite the lower-than-expected growth, economic managers maintain that their growth target is still achievable. To reach this target, the country’s GDP would need to expand by at least 6.6% in the second half of 2023.
Data revealed that consumer spending, a major driver of growth, contracted by 1.0% quarter-on-quarter, with decreased expenditures on clothing and restaurants contributing to the decline.
Gareth Leather, senior Asia economist at London-based Capital Economics, noted that consumption is expected to remain weak in the coming quarters.
Meanwhile, government spending declined by 5.2% on a sequential basis.
“On the plus side, falling inflation will boost households’ purchasing power,” Leather stated 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.
