ACHIEVING this year’s growth target is doable, but many challenges remain, analysts said after a higher-than-expected second-quarter result.
Gross domestic product (GDP) growth accelerated to 6.3 percent in April-June, the government reported on Thursday, up from the first quarter’s 5.8 percent and the 4.3 percent posted a year earlier.
It exceeded the market consensus of 6.0 percent and drove year-to-date growth to 6.0 percent, at the bottom end of the government’s 6.0- to 7.0-percent target for 2024.
Socioeconomic Planning Secretary Arsenio Balisacan said the country was on track to achieve this goal, adding that the Philippines remained one of the fastest growing in the region.
Consumer spending grew 4.6 percent in the period, accounting for two-thirds of output. Investments increased 11.5 percent while government spending expanded by 10.5 percent.
“The household final consumption expenditure continued to be a bit anemic, the growth is not as strong as one would expect,” Balisacan told reporters.
Consumer spending declined 0.1 percent quarter on quarter due to lower sales in restaurants and hotels, government data showed.
The industry and services sectors grew by 7.7 percent and 6.8 percent, respectively, but agriculture contracted by 2.3 percent.
On a seasonally adjusted basis, the economy grew 0.5 percent quarter on quarter, slower than the first quarter’s 1.3 percent.
Headwinds to achieving the 2024 target, Security Bank Corp. chief economist Robert Dan Roces said, include the declining agricultural sector, flat private consumption, export contraction and a sharp investment slowdown.
Global economic uncertainties and potential inflationary pressures also pose risks, he added.
“In short, the sustainability may be hampered, given the decelerating GDP trend quarter on quarter, uneven sector performance and reliance on government spending,” Roces said.
“To achieve and maintain the target, the government may need to implement targeted policies addressing these issues, such as agricultural reforms, consumer confidence boosters and investment attraction strategies.”
HSBC Global Research economist Aris Dacanay said that private demand remained weak, with consumers cutting back on spending due to high inflation and private investors likely delaying some investment projects because of high interest rates.
“Based on historical trends, growth momentum is indeed waning, supporting our view that full-year growth will remain below trend in 2024 at 5.8 percent,” he said.
This could prompt the Bangko Sentral ng Pilipinas to begin lowering its policy rate next week with a 25-basis-point cut to 6.25 percent.
Union Bank of the Philippines chief economist Ruben Carlo Asuncion also said that consumers had reduced spending and cut back on nonessential purchases due to high borrowing costs and fluctuating interest rates.
“Though higher GDP print on an annual basis, we see a moderation of domestic consumption, the biggest driver of GDP growth in PH (the Philippines),” he said.
Unlike Dacanay, Asuncion said the higher-than-expected GDP growth print could prompt monetary authorities to keep interest rates unchanged next week.
“But it would not definitely stop them if they decide to do an off-cycle rate cut when needed,” he added.
Pantheon Macroeconomics economist Miguel Chanco said that private consumption could have entered a technical recession and would stay constrained due to worsening financial conditions and declining consumer confidence.
Remittances have yet to “show any signs of rising fast enough to provide a meaningful uplift,” he added.
Standard Chartered Bank Asia economist and FX analyst Jonathan Koh still expects the country to grow 6.0 percent this year but stressed that the growth momentum was “softer than what [the] headline [result] is actually suggesting.”
“In terms of budget spending, if let’s say the government was to keep their deficit target this year, second half growth is probably going to be softer in terms of the support that can come from the fiscal front,” Koh said.
WITH A REPORT FROM REUTERS
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