THIS year’s economic growth target will likely be missed after a slower-than-expected third quarter that has also put pressure on monetary authorities to keep lowering interest rates, analysts said.
Subdued household and government spending limited gross domestic product (GDP) growth to just 5.2 percent in July-September, markedly down from the second quarter’s 6.4 percent and below the 5.7-percent median in a Manila Times poll of economists.
This brought year-to-date growth to 5.8 percent, below the 2024 goal of 6.0-7.0 percent.
Holiday spending could propel Philippine economic growth in the last three months of 2024, but economists warned that the full-year target could be missed given a sharper-thanexpected third-quarter slowdown. PHOTO BY J. GERARD SEGUIA
Household consumption — the top contributor to GDP growth — edged up to 5.11 percent from 4.7 percent in the prior quarter but remained below levels seen in the last two years, while government spending slowed by more than half to 5.0 percent from 11.9 percent.
“While the worst is probably over for private consumption in the Philippines, we doubt this pace of consumption growth is sustainable,” Capital Economics said as it retained a full-year GDP growth forecast of 5.5 percent.
It added that a continued boost from lower inflation and looser monetary policy should support consumption, but “expect growth in remittances to slow amid weaker global growth which will act as a headwind.”
Capital Economics also noted that investment growth remained muted and that “the level of fixed investment remains below pre-pandemic levels.”
The sharp slowdown in government spending, it continued, would lead to further fiscal tightening next year.
Rate cut justification
Bank of the Philippine Islands senior economist Emilio Neri, meanwhile, said the prospect of slower growth could warrant the Bangko Sentral ng Pilipinas (BSP) continuing with an easing cycle despite a weakening peso.
“The BSP may use the recent GDP data as justification for a rate cut in December,” he added. “However, external developments may also prevent them from cutting.”
Neri noted that uncertainties abroad had intensified following the election victory of Donald Trump, causing more peso volatility. The central bank, he said, “may find it more appropriate to keep rates steady if the peso weakens sharply in the coming weeks.”
The currency, which has weakened to the P58-to-the-dollar level in recent weeks as the dollar strengthened in anticipation of a Trump win, fell by 6.9 centavos on Thursday to P58.73 against the greenback.
ANZ Research, meanwhile, also said that slower economic growth would likely prompt the central bank to keep cutting interest rates.
“Given the benign inflation outlook over the near term and the softer GDP growth in Q3 2024, we think the BSP will cut rates by another 25 bps (basis points) in December 2024,” it said.
Bank of America (BofA), for its part, said that it had expected the pickup in private consumption and the slowdown in government spending but “underestimated the export slowdown and import pickup.”
Exports contracted by 1.0 percent in the third quarter, reversing from a 4.2-percent expansion three months earlier, while imports growth improved to 6.4 percent from 5.3 percent.
BofA maintained its 2024 Philippine growth forecast at 5.9 percent, forecasting a fourth-quarter improvement in private spending and still-subdued government consumption.
The third-quarter slowdown will reinforce the possibility of a 25-basis-point cut in December, BofA continued.
“However, our expectation of a further 100-bp cut in the policy rate … [next year] may be challenged by the fluid conditions in the US that point to a stronger US dollar, increased tariffs on trade, more restrictions on immigration — some of which complicate monetary policy.”
The central bank’s policy rate currently stands at 6.0 percent following two 25-basis-point cuts in August and October.
The BSP’s policymaking Monetary Board has only one meeting left this year in December. Another 25-basis-point cut will bring the benchmark rate to 5.75 percent.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said that BSP rate cuts and expected reductions by the US Federal Reserve would help sustain economic activity and buoy growth.
Philippine growth, he added, will still be among the fastest growing in the region.
Biz group upbeat
The Philippine Chamber of Commerce and Industry (PCCI), for its part, said it was optimistic that growth would pick up in the last three months of the year due to holiday spending.
“Primarily it’s the seasonality of [the] last quarter,” PCCI Chairman George Barcelon told reporters, “definitely there will be more economic activities.”
“Definitely in the last quarter, moving forward, it’s (GDP growth) going to be beyond 6 percent,” he claimed.
The Makati Business Club (MBC), meanwhile, called on the government to increase its support for the agriculture sector, which continued to contract in the third quarter.
The 2.8-percent decline, worse than the -2.3 percent posted in April-June, was blamed on strong typhoons that had caused billions of pesos in farm damage and the lingering effects of the El Niño weather pattern.
Ahead of the release of the GDP data, the Philippine Statistics Authority reported that the value of farm output had fallen by 3.7 percent in the third quarter, worsening from the April-June’s -3.2 percent and -0.2 percent recorded a year ago.
The MBC noted the Philippines was among the world’s most climate-vulnerable countries with the agriculture sector often affected by typhoons, droughts and floods.
“This makes sustainable farming practices and climate adaptation crucial for food security,” it said.
Be the first to comment