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The Philippine economy likely slowed in the third quarter as household spending remained muted after the central bank cut interest rates in August.

A BusinessWorld poll of 12 economists and analysts conducted last week yielded a median gross domestic product (GDP) annual growth estimate of 5.7% for the July-to-September period.

If realized, it would mark a slowdown from the 6.3% growth in the previous quarter and the 6% expansion in the third quarter of 2023.

This would also bring the year-to-date growth to 5.9%, just below the 6-7% target for the year.

The Philippine Statistics Authority (PSA) is scheduled to release third-quarter GDP data on Thursday (Nov. 7). 

Most economists polled by BusinessWorld said GDP growth likely slowed as elevated inflation may have tempered household spending in the third quarter.

“On the demand side, household consumption was still the primary driver of growth, though it may have remained subdued due to persisting price pressures,” said Chinabank Research, which projected a 5.7% GDP growth in the third quarter.

Inflation quickened to a nine-month high of 4.4% in July but slowed to 3.3% in August. Inflation further eased to a four-year low of 1.9% in September, settling below the 2-4% target. In the first nine months, consumer price growth averaged 3.4%, which is also the central bank’s forecast for the year.

“We expect growth in 3Q 2024 to have cooled to 5.7% year on year as public spending, both in consumption and investment, moderated. Though the central bank did begin its easing cycle during the quarter, we don’t think the change in the monetary stance had affected [the third-quarter] growth,” HSBC ASEAN (Association of Southeast Asian Nations) economist Aris D. Dacanay said in an e-mail.

The Bangko Sentral ng Pilipinas (BSP) began its easing cycle with a 25-basis-point (bp) cut at its Aug. 15 meeting, followed by another 25-bp reduction at its Oct. 16 meeting. This brought the target reverse repurchase rate to 6%.

“Private consumption will stay muted as it will take time for the recent rate cuts to filter through the economy,” said Sarah Tan, an economist at Moody’s Analytics.

Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp., said third-quarter GDP likely expanded by 6%. This, as he expects household spending to have grown by 5%-5.5% in the period ending September from 4.6% seen in the second quarter.

He noted the rate cut’s effect could be seen in “both improved liquidity and a firmer expectation of lower forward inflation.”

Angelo B. Taningco, vice-president and Research Division head at Security Bank Corp., said third-quarter growth may have also been driven by “healthy” government spending, “resilient” capital formation, and a wider trade deficit.

Government spending jumped by more than a tenth to PHP 4.26 trillion in the first nine months, breaching the PHP 4.22-trillion program for the period.

So far, the government has already disbursed almost three-fourths of its PHP 5.8-trillion revised spending program this year.

“Continued public and private construction activities continued to support growth in capital formation,” said Chinabank Research.

Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said in an e-mail that construction, transport and storage, and accommodation and food service activities also likely drove GDP expansion to 6.5% in the third quarter.

However, some economists noted adverse weather conditions in the July-to-September period may have hurt agricultural output, which accounts for around 10% of GDP.

“With farm output challenged by recent typhoons and strong monsoon rains, the nonfarm GDP driven by private sector spending, would probably do much of the heavy lifting for 3Q24 GDP to rise by 6.2% year on year,” Ruben Carlo O. Asuncion, chief economist of Union Bank of the Philippines, said.

Chinabank Research said agriculture likely remained “a drag” on third-quarter growth as output declined due to bad weather.

For instance, the effect of Super Typhoon Carina and the enhanced southwest monsoon left around PHP 4.73 billion worth of agricultural damage, affecting farmers and fisherfolk mostly in Luzon.

Third-quarter agricultural output data will be released on Wednesday.

“On the supply side, services continued to power the economy but may have moderated amid lackluster consumption,” Chinabank Research said.

Mr. Asuncion also noted that recent disinflation, strong employment generation by the services sector in August, and robust manufacturing are “clear signals of positive macro catalysts during the quarter.”

Outlook

“Overall, we expect the Philippine economy to grow 5.9% in 2024,” Moody’s Analytics’ Ms. Tan said. “That will be just shy of the government’s 6% to 7% target for the year but will again outperform many of its regional peers in terms of growth.”

Harumi Taguchi, principal economist at S&P Global Market Intelligence, said they expect “lower borrowing costs and softer financial conditions to lift household and business sentiment and lift credit growth in 2025.”

“Overall economic performance is expected to remain on an uptick even though the impact from previous policy rate hikes suppress investment in the private sector. While robust infrastructure spending will drive economic activity, a steady increase in remittance will support private consumption,” Ms. Taguchi said.

John Paolo R. Rivera, senior research fellow at Philippine Institute for Development Studies, said he maintains an optimistic outlook for the rest of the year as a rise in remittances ahead of the holidays is expected to boost consumer spending.

HSBC’s Mr. Dacanay said he expects growth in household consumption to “finally change direction for the better as inflation significantly eased over the quarter.”

“Services exports also likely remained unperturbed with the BPO (business process outsourcing) sector leading the charge while goods exports likely held its ground,” he said. — Pierce Oel A. Montalvo

Subsidies provided to government-owned and -controlled corporations (GOCCs) dropped by an annual 14% in September, according to the Bureau of the Treasury (BTr).

The latest data from the Treasury showed that budgetary support to GOCCs declined by 14.33% to PHP 18.22 billion in September from PHP 21.26 billion in the same month a year ago.

Month on month, GOCC subsidies doubled (100.19%) from PHP 9.1 billion in August.

State-owned firms receive monthly subsidies from the National Government (NG) to support their daily operations if their revenue is insufficient.

In September, the Philippine Health Insurance Corp. (PhilHealth) received the biggest amount of subsidies at PHP 9.34 billion, accounting for 51.27% of the total.

This was the second time PhilHealth received subsidies this year, after the PHP 260 million it got in June.

The National Irrigation Authority (NIA) received the second-biggest amount of government subsidies for the month at PHP 5.5 billion, followed by the National Electrification Administration at PHP 1.01 billion.

Several GOCCs received at least PHP 200 million in subsidies, including the Philippine Crop Insurance Corp. (PHP 353 million), Philippine Heart Center (PHP 348 million), Social Housing Finance Corp. (PHP 284 million), and the National Kidney and Transplant Institute (PHP 223 million).

At least PHP 100 million in subsidies were given to the Philippine National Railways (PHP 171 million), Philippine Children’s Medical Center (PHP 151 million), National Power Corp. PHP (144 million), and the Philippine Coconut Authority (P112 million).

State-owned corporations that received at least PHP 50 million include the Cultural Center of the Philippines with PHP 80 million, Light Rail Transit Authority with PHP 72 million, Lung Center of the Philippines with PHP 70 million, Development Academy of the Philippines with P64 million, and the Tourism Promotions Board with PHP 54 million.

In September, no subsidies were given to the Bangko Sentral ng Pilipinas, National Home Mortgage Finance Corp., Philippine Deposit Insurance Corp., Small Business Corp., and the National Housing Authority.

GOCCs that also received zero subsidies during the month include the National Food Authority, Bases Conversion and Development Authority, Philippine Fisheries Development Authority, Philippine Postal Corp., Power Sector Assets and Liabilities Management Corp. (PSALM), and the Tourism Infrastructure and Enterprise Zone Authority.

In the January-September period, GOCC subsidies fell by 23.25% to PHP 105.24 billion from PHP 137.13 billion in the same period last year.

The NIA remained the top recipient of subsidies in the nine-month period with PHP 54.38 billion, followed by PhilHealth (PHP 9.6 billion), and PSALM (PHP 8 billion).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that GOCCs received less subsidies in September “amid the need to better manage/narrow the NG budget deficit through more disciplined government spending.”

As of end-September, the NG’s fiscal gap slightly narrowed by 1.35% to PHP 970.2 billion from PHP 983.5 billion a year ago.

“Subsidies decline for a host of reasons, likely due to: funding reallocation from subsidy to calamity response and recovery, social amelioration and protection programs; and the increased profits of GOCCs — warranting the NG to reallocate funds for other pressing matters like infrastructure spending, DRRM (disaster risk reduction and management) response, and social protection programs,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said via Viber.

In the coming months, the government must increase its subsidies to GOCCs that are involved in education and nutrition, Mr. Ricafort said.

“GOCCs [that should receive higher subsidies] include those needed by the poorest of the poor, and those that would have the greatest impact in society such as healthcare, nutrition, even others related to education and boosting productivity,” he said in a Viber message. — Beatriz Marie D. Cruz

A Kamala Harris presidency would be more beneficial to the Philippine economy, analysts said, noting the potential impact on monetary policy, trade and other economic indicators.

“The implications of a Trump or Harris presidency on the Philippines can vary significantly, particularly in terms of interest rates, foreign exchange, and the overall economy,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said.

Republican candidate Donald J. Trump faces Vice-President and Democratic nominee Ms. Harris in the US presidential elections on Nov. 5.

More than 75 million Americans have already cast their ballots, according to the Election Lab at the University of Florida, Reuters reported.

Mr. Ravelas noted the impact of the US elections on the US Federal Reserve and possibly the Philippines’ own monetary policy.

“A Harris presidency is expected to maintain a more stable economic policy, similar to the current administration. This could lead to a more predictable interest rate environment, with the US Federal Reserve potentially continuing its rate-cutting cycle,” he said.

The Bangko Sentral ng Pilipinas (BSP) kicked off its easing cycle in August, delivering a total of 50 basis points (bps) worth of rate cuts since then. BSP chief Eli M. Remolona, Jr. has also signaled further easing moving forward.

The Fed likewise began cutting interest rates in September, its first time reducing rates in four years. It delivered a larger-than-expected half-percentage-point cut, bringing the Fed funds rate to the 4.75%-5% range.

Markets are anticipating further rate cuts from the US central bank, but at a more modest pace of 25 bps.

On the other hand, Mr. Ravelas said a Trump win could “lead to higher interest rates in the US due to potential inflationary pressures from increased fiscal spending and tariffs.”

The former US President plans to implement stringent trade restrictions including a 10-20% universal tariff on all imports as well as a tariff of 60% or higher on Chinese goods.

On the other hand, Ms. Harris has opposed the concept of a universal tariff, instead favoring “strategic tariffs to help workers or punish trade adversaries,” Reuters reported.

The Philippine economy is seen to more likely thrive under a Harris presidency amid her less restrictive trade policies, analysts said.

“The Philippine economy could benefit from policy continuity under Harris. Her administration is likely to focus on strengthening economic ties and maintaining stable trade relations, which could support Philippine exports and the business process outsourcing (BPO) sector,” Mr. Ravelas said.

“A Trump presidency could introduce more economic uncertainty and potential challenges for the Philippines, while a Harris presidency might offer more stability and continuity in economic policies.”

ANZ Research said that while both candidates’ platforms are restrictive on trade with China, each have different approaches.

“Trump’s stance tends to be ‘American only,’ while Harris will likely extend Biden’s ‘friend shoring,’” it said in a report.

Data from ANZ showed that during the Trump and Biden terms, the United States imported less from mainland China and more from the rest of Asia. However, a second Trump term would “likely target Asia more broadly.”

“Biden’s administration has maintained the tariffs imposed under Trump. He also strengthened export controls,” it said.

“This policy mix has changed global and Asian trade patterns. Between June 2018 and September 2024, US goods imports from mainland China slumped by 20%. The share of US total imports from mainland China fell 8% to 14%.”

ANZ noted that Ms. Harris is likely to favor the Indo-Pacific Framework proposed by Mr. Biden, while Mr. Trump is not in support of multilateral agreements, citing his withdrawal from the Trans-Pacific partnership.

“Trump’s current campaign proposals are more severe than the actual trade policies he implemented as president. If his current proposal of a 60% tariff on all Chinese imports and a 10-20% universal baseline tariff become a reality, the average US tariff would rise to 17.7%, a level not seen since 1934,” ANZ said.

This would have consequences such as higher prices for US consumers; margin compression for Chinese exporters and US importers; as well as a negative effect on the rest of Asia despite a supply-chain diversion from China, it added.

Mr. Ravelas noted that Mr. Trump’s protectionist policies “could hurt the Philippine economy by reducing exports to the US and affecting remittances from Filipino workers in the US.”

The United States remains the top destination of Philippine-made goods. In August, it accounted for close to 20% of exports during the month.

The world’s most powerful economy also typically accounts for nearly half of overall monthly remittances to the Philippines.

Meanwhile, the peso is also seen to be under less pressure if Ms. Harris assumes the presidency.

“The Philippine peso might experience less volatility under a Harris presidency. A stable US economic policy could lead to a more predictable exchange rate environment, benefiting the Philippine peso,” Mr. Ravelas said.

Under a Trump administration, the local currency could depreciate against the dollar if US interest rates rise.

“Investors might prefer the higher returns in the US, as well as the impact of tariffs could lead to competitive devaluation.”

The peso closed at P58.10 per dollar on Thursday, rising by 13 centavos from its P58.23 finish on Wednesday. Peso trading was closed on Friday due to the All Saints’ and Souls’ Day weekend.

The peso has returned to the P58-per-dollar level since August.

The national government’s (NG) outstanding debt rose to a fresh high of PHP 15.89 trillion as of end-September, but the Bureau of the Treasury (BTr) said this level is still “manageable.”

Data from the BTr on Wednesday showed that outstanding debt jumped by 2.2% to PHP 15.89 trillion as of end-September from PHP 15.55 trillion as of end-August.

“The total outstanding debt had a minimal increase of 2.2% compared to the end-August 2024 level due to the net availment of new external and domestic debt,” the BTr said in a statement.

Year on year, the debt stock increased by 11.4% from PHP 14.27 trillion a year ago.

“Nevertheless, the NG’s strategic focus on local fundraising allows the government to limit external risk exposure to only 31.19% of its debt portfolio, while enabling the development of the local bond market and providing Filipinos with quality investment vehicles to grow their savings,” the Treasury said.

The bulk, or 68.81% of the total debt stock, came from domestic sources.

As of end-September, outstanding domestic debt inched up by 1.3% to PHP 10.94 trillion from PHP 10.79 trillion in the previous month. Government securities accounted for nearly all of domestic debt.

Year on year, domestic debt increased by 12.3% from PHP 9.73 trillion.

“This (increase) was mainly driven by PHP 145.11-billion net issuance of new government securities, which was slightly offset by a PHP 460-million decrease in the value of US dollar-denominated securities due to the appreciation of the Philippine peso,” the BTr said.

Meanwhile, external debt rose by 4.2% to PHP 4.96 trillion at end-September from PHP 4.76 trillion at end-August, the BTr said. It also jumped by 9.3% from PHP 4.53 trillion in the same period a year ago.

The uptick in foreign debt was due to the P200.89 billion in net foreign borrowings, including the PHP 140.99 billion or USD 2.5-billion issuance of triple-tranche US dollar-denominated global bonds, BTr said. The transaction was finalized in September.

“Nevertheless, favorable foreign exchange adjustments contributed a substantial decrease of P2.43 billion in the overall external debt.”

The peso closed at PHP 56.017 against the US dollar at the end of September, appreciating by 16.2 centavos from its PHP 56.179 finish at the end of August.

External debt comprised of PHP 2.32 trillion in loans and PHP 2.64 trillion in global bonds.

Broken down, government securities consisted of PHP 2.25 trillion in US dollar bonds, PHP 215.23 billion in Euro bonds, PHP 59.11 billion in Japanese yen bonds, PHP 56.02 billion in Islamic certificates and PHP 54.77 billion in peso global bonds.

Meanwhile, the NG’s guaranteed obligations at end-September increased by 2.4% to PHP 372.86 billion from PHP 364.03 billion as of end-August. It also picked up by 2.9% from P362.22 billion in the same period in 2023.

“This was mainly driven by the PHP 12.3 billion in new guarantees for the Power Sector Assets and Liabilities Management Corp. (PSALM) and the National Food Authority (NFA), as well as PHP 940 million in upward revaluation of third currency-denominated guarantee,” the Treasury said.

“Net repayments of PHP 3.95 billion and P460 million downward revaluation of US dollar-denominated guarantees tempered the increase,” it added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the increase in debt was mainly due to increased borrowings to plug the budget deficit.

For the first nine months of 2024, the budget deficit narrowed by 1.35% to PHP 970.2 billion from PHP 983.5 billion a year ago.

“Some maturity of government securities in October 2024 and seasonally lower NG borrowings towards the end of the year in view of the Christmas holiday season could at least temper the rise in additional NG debt,” Mr. Ricafort said.

At the end of June, the NG’s debt as a share of gross domestic product (GDP) was at 60.9%, still above the 60% threshold deemed by multilateral lenders as manageable for developing economies. It aims to lower the debt-to-GDP ratio to 60.6% by the end of 2024.

The NG’s debt stock is expected to hit PHP 16.06 trillion at the end of 2024, with PHP 10.92 trillion coming from domestic sources and PHP 5.13 trillion from foreign sources. — Beatriz Marie D. Cruz

The Philippines needs to boost domestic demand to insulate its economy from a potential setback on multilateralism, which is likely to happen if Donald J. Trump returns to power in the United States, according to economists.

“It’s not only the Philippines which will be adversely affected should the US pivot away from multilateralism, something of a certainty under a Trump presidency,” Diwa C. Guinigundo, country analyst for the Philippines of GlobalSource Partners, said in an e-mail.

The United States’ trading partners “will suffer from the consequences of a fundamentally closed trading system — higher tariffs will actually reduce US imports and growth, while its trading partners will have compressed markets, lower trading gains and economic growth,” he said.

Mr. Trump, the Republican candidate, faces Democratic rival and Vice-President Kamala Harris in the Nov. 5 presidential elections.

If he wins, Mr. Trump has said he will impose a 10% tariff on imports from all countries and 60% tariff on imports from China.

Philippine Finance Secretary Ralph G. Recto last week said a potential Trump presidency poses risks to global growth as increased protectionism could weaken global trade.

“We are concerned that there will be a setback on multilateralism, particularly in trade as well… We know that the driver of global growth is more trade. So, that is a concern,” Mr. Recto said at a briefing of the Intergovernmental Group of Twenty-Four (G24) Board of Governors in Washington, D.C. on Oct. 22.

Mr. Recto said the Philippines is counting on its relationship with the US to encourage firms to do more offshoring to the Philippines.

“If the US adopts a more protectionist stance, the Philippines, as a net exporter with a USD 2.3-billion trade surplus in goods trade with the US in 2023, could be negatively affected,” George N. Manzano, who teaches trade at the University of Asia and the Pacific, said in an e-mail.

“An across-the-board tariff increase by the US would adversely impact Philippine exports.”

But Mr. Manzano said it is an advantage for the Philippines that electronic products account for a huge chunk of its exports to the US, thanks in large part to a 1990s World Trade Organization (WTO) agreement that eliminated all import duties on many information technology products.

“Approximately 67% of the Philippines’ goods trade with the US in 2023 was in the electronics sector, which currently benefits from duty-free access, likely due to the Information Technology Agreement (ITA) under the WTO,” he said.

Electronic products accounted for 52.9% of the country’s total exports in August, with total earnings of USD 3.57 billion, according to the statistics agency.

The United States was the top destination of Philippine-made goods in August with an export value of USD 1.22 billion, accounting for 18.1% of the total. This was followed by Hong Kong (USD 942.56 million), Japan (USD 935.33 million), People’s Republic of China (USD 849.38 million), and Republic of Korea (USD 332.64 million).

Impact on BPO sector

“The Philippines could likely be more affected in the business process outsourcing (BPO) area considering our comparative advantage in this sector relative to other Southeast Asian countries,” said Mr. Guinigundo, a former central bank deputy governor.

The IT and Business Process Association of the Philippines (IBPAP) is aiming to generate USD 38 billion in revenues and increase the headcount to 1.82 million this year. The group is targeting to generate as much USD 59 billion and employ 2.5 million by 2028.

However, the IT-BPM sector is under pressure due to a talent and skills gap, rising operating costs, and increased global competition.

Fitch Solutions’ BMI unit said earlier this month that the Philippine BPO sector is at a disadvantage amid the growing shift to artificial intelligence, noting a possible reshoring of call centers to “even developed economies cost effectively.”

“This is no win-win situation. Everybody would ultimately lose,” Mr. Guinigundo said, “China’s retaliatory response could in fact worsen this scenario.”

Mr. Trump’s recent policy remarks, including his famous America first policy and an emphasis on burden sharing, have stoked concerns that Washington could adopt an inward-looking and an isolationist approach.

During his presidency, Mr. Trump withdrew from various global institutions including the Paris Climate Agreement and the Trans-Pacific Partnership.

On the economic front, Mr. Trump has been citing the need to raise tariffs for the US to usher in an era of “manufacturing renaissance.”

On the other hand, Ms. Harris, the Democratic candidate, has vowed to “strengthen, not abdicate” America’s “global leadership.”

“The president of the United States must not look at the world through the narrow lens of ideology, petty partisanship, or as an instrument for their own ambitions,” read a recent X post by Ms. Harris, who is expected to uphold the Biden government’s strategy of cementing a network of US allies and partners to confront shared challenges.

Mr. Marcos has pursued closer ties with the United States amid China’s intrusions into Philippine waters, giving it access to four more military bases under the 2014 Enhanced Defense Cooperation Agreement.

US-Philippine ties on the economic front have also reached new highs, with a business delegation led by US Commerce Secretary Gina Raimondo in March vowing to help the Philippines set up a wafer fabrication plant and double the number of its semiconductor plants.

Weeks later, the US announced a plan to put up an economic corridor on the main island of Luzon, following a trilateral meeting among Mr. Marcos, Mr. Biden, and Japanese Prime Minister Fumio Kishida.

The project, a “key deliverable” under the Partnership for Global Infrastructure and Investment component of the US-led Indo-Pacific Economic Framework, will be pursued by Washington with the help of Japan.

Mr. Manzano said the US would likely be compelled to step up its ties with Asia-Pacific countries “to keep pace with the increasing influence of China in the Southeast Asian region.”

“The US will continue to deepen its relationship with the Philippines. President Marcos is inclined to deal more with the US than with China given the developments in the West Philippine Sea,” he said.

A report by Moody’s Analytics in July said the Asia-Pacific region faces the risk of an abrupt shift in US trade policy in case of a Republican sweep in the US presidential election.

But it expects “minimal retaliation” from the Philippines against potentially higher US tariffs given its strong defense ties with Washington.

Among Asia-Pacific economies, Moody’s said only China is likely to retaliate considering its ongoing trade with the US since 2018, when Mr. Trump slapped investment controls and tariffs on hundreds of billions of dollars’ worth of Chinese products due mainly to alleged unfair trade practices by Beijing.

Mr. Guinigundo said amid the trade risks, the Philippines needs to prioritize boosting domestic demand and enhancing trade with the ASEAN+3, which includes Japan, China and South Korea.

“Two things which may not completely offset possible trade shocks: one is to promote domestic demand, and two is to further stimulate our trade in both goods and services with our ASEAN+3 partners.”

Mr. Guinigundo said promoting domestic demand is anchored on lower inflation and higher economic growth driven by personal consumption and investments.

“The latest prognosis is quite positive because price movements have started to ease while GDP (gross domestic product) growth may be as targeted — between 6% and 7%,” he said.

He noted the Philippines has improved trade ties with its neighbors.

“Expanding the liberalized list and lowering tariffs can help in this direction,” he added. “Moreover, higher intra-ASEAN+3 financial linkages could further stimulate regional trade.”

Should there be a shift in US trade and foreign policies, Mr. Guinigundo said Manila should continue to improve its investment climate “to ensure private US business will continue to increase their stake here.”

“Trump’s public policy could restrict international trade only to a certain extent. If the Philippines is able to convince US businessmen and investors that the Philippines is good for business in the long term, they will and they will come,” he said.

“Let’s continue to ensure there is good governance here, corruption is under control, there is rule of law and respect for property rights and ease of doing business,” he added.

Meanwhile, Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said the Philippines is unlikely to suffer much from a potential protectionist trade policy in the US because the Southeast Asian nation has not benefited significantly from free trade.

“Trade works well if institutions are also reformed to encourage competition and greater efficiency. None of these has happened, resulting in a moribund manufacturing sector,” he said in an e-mail.

“Industries and elite power continued to drain the economy of its energy and vigor. Whether or not Trump wins, the overseas Filipino workers will remain our saving grace.” – Kyle Aristophere T. Atienza, Reporter

Filipino households’ heavy reliance on remittances could leave them more vulnerable during economic shocks, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper, citing the low savings and investments among families.

The paper, authored by BSP Assistant Governor Veronica B. Bayangos and Research Associate Cymon Kayle Lubangco, said that households dependent on remittances could be at risk of external headwinds.

“A substantial decline in remittances would have serious consequences at both the macroeconomic and household levels. Vulnerable remittance-receiving households could face reduced access to education and healthcare, negatively affecting their quality of life,” the paper said.

“Local communities that rely heavily on remittances could experience economic disruptions. For instance, during the COVID-19 (coronavirus disease 2019) pandemic, families of overseas Filipino workers (OFWs) saved and invested less.”

BSP data showed the percentage of households that used remittances as savings dropped to 31.7% in the fourth quarter of 2021 from 33.4% in the same quarter of 2020. However, this improved to 32.1% in the first quarter of 2024.

Households that used remittances for investments also fell to 6.2% in the first quarter of 2024 from 11% in the third quarter of 2021.

“In our analysis, we find that OFW households prioritize immediate consumption over saving and investing,” the paper said.

In the first quarter of this year, the bulk (96.6%) of surveyed OFW households used their remittances for food and household needs.

“The saving rate for cash remittances peaked in 2009, where an average of 13.1% of cash remittances were allocated for savings. Since 2009, the average saving rate for cash remittances among OFW households has slightly declined to around 9.0-10.0%.”

“Despite slower remittance growth, data show that many households and rural communities still rely on remittances for their livelihood,” it added.

The BSP paper showed that migrant households’ immediate consumption is geared towards nonfood spending compared with non-migrant households.

“These nonfood commodities are largely welfare-inducing commodities such as health, education, and housing. The allocation towards productive consumption goods shows that remittances are treated as transitory income,” it added.

Unemployment and wages also impact remittance receipts, highlighting the “altruistic motivation of sending remittances,” according to the paper.

“However, given the global effect of such shocks, this may also expose remittance-receiving households to risks if their overseas Filipino members cannot send remittances due to the economic conditions in their respective host countries,” it said.

Household spending

Meanwhile, the BSP paper also showed that cash remittances “significantly affect household spending.”

“The inflow of remittances is positively influenced by the number of OFWs abroad, the unemployment rate, and the depreciation of the peso. Conversely, higher regional wages and bank transaction costs reduce remittances,” it said.

Latest data from the BSP showed cash remittances grew by 2.9% to USD 22.22 billion in the January-August period from USD 21.58 billion a year earlier.

The United States accounted for nearly half or 41.3% of overall remittances in the first eight months. This was followed by Singapore (7%), Saudi Arabia (6.1%), the United Kingdom (4.9%) and Japan (4.8%).

The BSP paper said that remittances are a key contributor to the economy as these “augment foreign currency reserves, alleviate pressure on the exchange rate, and reduce the need for foreign borrowing.”

“They also support capital market development, enabling recipients to accumulate productive assets and invest in financial instruments, while enhancing human capital. Remittances can also alleviate government financial burdens for social welfare programs.”

The central bank noted that as household income rises, consumption likewise increases.

It cited studies showing that household spending increases as migrants send home money to support their families, which is prominently seen in countries with “high unemployment and debt-laden households.”

However, the paper also noted that remittances have remained somewhat stable despite shocks such as the COVID-19 pandemic.

“Several factors explain the resilience of remittance flows to the Philippines during extreme economic conditions, such as the COVID-19 pandemic. Overseas Filipinos (OFs) are a diverse group, and their ability to remit varies with employment stability,” it said.

“OFs in essential sectors, such as healthcare, likely continued sending remittances, while those in more vulnerable sectors experienced declines.” – Luisa Maria Jacinta C. Jocson, Reporter

Infrastructure spending by the National Government declined by an annual 11.1% in August as heavy rains hampered the implementation of public works projects, the Department of Budget and Management (DBM) said. 

In its latest report posted on its website on Tuesday, the DBM said infrastructure and other capital outlays fell to PHP 108.6 billion from PHP 122.1 billion a year earlier.

Month on month, infrastructure spending dropped by 13.1% from PHP 125 billion in July.

The DBM attributed the drop  to lower disbursements by the Department of Public Works and Highways (DPWH) due to “adverse weather conditions which slowed down project implementation.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said recent typhoons had caused heavy floods that delayed infrastructure projects.

The DBM also cited “delays in the submission of billing documents by contractors, which affected the timelines for the processing and release of payments for ongoing projects.”

There were also adjustments in project timelines as some major infrastructure projects experienced delays or were rescheduled, it said.

About PHP 22 billion worth of outstanding checks as of end-August had not yet been encashed by contractors, the DBM said.

“Likewise, capital expenditures were down year on year sans the big-ticket releases for local counterpart funds for the various foreign-assisted projects of the DoTr (Department of Transportation),” the DBM said.

As of Aug. 31, key allotment releases included PHP 13.3 billion under the DoTr for capital outlays.

This was allocated “mostly to cover the loan proceeds requirement for the implementation of the Davao Public Transport Modernization Project and for the payment of right-of-way expenses relative to the implementation of the Metro Manila Subway Project Phase I and North-South Commuter Railway System,” the DBM said.

About P3.7 billion was also released to the Department of Information and Communications Technology at the end of August as part of the funding requirements for the government’s Free Internet Wi-Fi Connectivity in Public Places program.

In the January-August period, infrastructure and other capital outlays rose by 14.2% to PHP 845.3 billion from PHP 740.3 billion a year ago.

The DBM expects infrastructure spending to improve after the issuance of PHP 15.1 billion worth of allotments to the DPWH in September. This will mainly cover the government’s counterpart requirements for various foreign-assisted projects this year, such as the Metro Manila Subway, North-South Commuter Railway System and Davao Public Transport Modernization Project.

About PHP 10 billion will be allotted for the revised modernization program of the Armed Forces of the Philippines.

Mr. Ricafort said agencies would likely ramp up infrastructure spending before the midterm elections in 2025.

“For the coming months, government spending especially on infrastructure and other projects could be accelerated in preparation for the midterm elections, especially before the election ban, which could be a major source of economic growth.”

Nigel Paul C. Villarete, senior adviser on public-private partnerships at the technical advisory group Libra Konsult, Inc., said the government should implement catch-up plans as bad weather could affect construction schedules.

“Midyear to later months will have much more deviations in spending due to the onset of the rainy season, which has a significant effect on construction schedules,” he said in a Viber message.

The government aims to spend 5-6% of gross domestic product on infrastructure this year. — Beatriz Marie D. Cruz

The Supreme Court (SC) issued on Tuesday a temporary restraining order (TRO) on the further transfer of excess funds of Philippine Health Insurance Corp. (PhilHealth) to the National Treasury.

“The TRO is effective immediately,” SC Spokesperson Camille Sue Mae L. Ting said. “The TRO is just really to prevent the further transfer of more funds from PhilHealth to the National Treasury.”

The SC consolidated the petitions filed by 1SAMBAYAN Coalition, a group led by Senator Aquilino Martin “Koko” D. Pimentel III and another group led by Bayan Muna Chairman Neri J. Colmenares.

The three petitions were filed to stop the transfer of PHP 89.9 billion in excess funds from PhilHealth to the National Treasury.

“All three petitions challenge the return of excess reserve funds from government-owned and -controlled corporations to the National Treasury to fund unprogrammed appropriations,” the SC public information office said in a statement.

The TRO was issued after P60 billion in PhilHealth funds have already been transferred to the Treasury in three tranches since May.

A fourth and final tranche worth PHP 29.9 billion was scheduled to be transferred to the Treasury in November.

Ms. Ting said it is still possible for the High Court to tackle the plea for a status quo ante order, which could allow the return of the PHP 60 billion to PhilHealth’s coffers.

The oral arguments scheduled for Jan. 14, 2025, would push through, she added.

A copy of the TRO had yet to be released.

In a statement, Finance Secretary Ralph G. Recto said the department “respects the Supreme Court’s intervention.”

“I recognize the right of every citizen to seek redress from the courts. Rest assured that the DoF (Department of Finance) will fully comply with the order of the Supreme Court,” he said.

“We give our full cooperation to the Supreme Court as we look forward to the opportunity to shed light on the issues presented during the oral arguments.”

A provision included in the 2024 General Appropriations Act allowed the DoF to issue Circular No. 003-2024, authorizing PhilHealth and the Philippine Deposit Insurance Corp. to transfer PHP 89.9 billion and PHP 110 billion, respectively.

These would help fund unprogrammed appropriations worth PHP 203.1 billion, which would support government programs in health, infrastructure and social services.

“We reiterate that before proceeding with the utilization of GOCC (government-owned or -controlled corporation) idle funds, our agency exercised due diligence and consulted extensively with the government’s legal experts,” Mr. Recto said.

“These include the Governance Commission for GOCCs, the Government Corporate Counsel and the Commission on Audit. These efforts were undertaken to ensure full compliance with our laws,” he added.

In a statement, PhilHealth said it fully respects and will abide by the ruling.

PhilHealth said it remains focused on its mission to provide healthcare to Filipinos through “better and responsive benefit packages and availment policies that ensure greater access to healthcare services.”

Solicitor-General Menardo I. Guevarra, whose office represents government agencies in legal cases, said they would “respect the TRO,” noting that it is “limited to PhilHealth funds only.”

One of the petitioners, former SC Senior Associate Justice Antonio T. Carpio, said the TRO “saves the poorest of the poor of Filipinos… whose only source of life-saving medicine is PhilHealth.”

“We hope that the Executive branch will return all the transferred funds back to PhilHealth pending the final decision of the Supreme Court,” he said in a Viber group chat message with reporters.

Mr. Carpio, along with 1SAMBAYAN, said in their petition that since PhilHealth funds are “special funds,” they cannot be transferred unless their purpose has been abandoned or accomplished.

They added that the fund transfers violated Article VI, Section 25 (5) of the Constitution. Under the Charter, “no law shall be passed authorizing any transfer of appropriations.”

Former Finance Undersecretary Cielo D. Magno, who filed the first petition questioning the transfer with Mr. Pimentel, said they are hoping the top court would declare the fund transfer as unconstitutional.

“This measure will temporarily stop the financial hemorrhage of PhilHealth,” she told BusinessWorld in a Viber message. – Chloe Mari A. Hufana, Reporter

Philippine motor vehicle output jumped by 34.7% in August, logging the second-fastest growth in the region, the ASEAN Automotive Federation (AAF) said.

In a report released on Tuesday, the AAF said the country produced 10,941 units in August, 2,816 more than 8,125 units produced a year earlier.

At 34.7%, the Philippine motor vehicle output growth was behind Myanmar’s 48.7% growth but faster than the 8.9% growth in Malaysia.

It also outperformed the 11.3% decline in the region during the month. A decline in output was seen in Vietnam (7.4%), Indonesia (14.6%), and Thailand (20.6%).

In the first eight months of 2024, Philippine motor vehicle production expanded by 17.3% to 86,585 units from 73,789 a year ago.

This was the second-fastest growth in the region, behind Myanmar, which expanded by 180% to 1,697 units in the first eight months from 606 last year.

In third spot was Malaysia, whose production grew 7.8% to 536,313 units from 497,309 a year ago.

Indonesia (18%), Thailand (17.7%), and Vietnam (8.5%) recorded a drop in production in the January-to-August period. The region’s production had fallen by 12% to 2.51 million as of end-August.

Meanwhile, motorcycle and scooter production in the Philippines surged by 101.3% in August to 115,974, the fastest growth so far this year.

The Philippines posted the highest growth in motorcycle and scooter production among the four countries in August. Indonesia posted a 6.9% growth in production to 630,601 units, followed by Malaysia where output went up 3.3% to 53,323 units.

Motorcycle and scooter production in Thailand slumped by 15.8% to 144,244 units in August.

Overall, the four countries produced 944,142 motorcycles and scooters in August, up by 8.5% from 870,144 units a year ago.

In the first eight months, Philippine motorcycle and scooter production jumped by 5.2% to 893,293, followed by Indonesia which increased production by 2.2% to 4.69 million.

Thailand saw a 12.2% drop in production to 1.29 million, while Malaysia’s output fell by 9.6% to 365,876.

This brought the region’s total motorcycle and scooter production to 7.24 million in the January-to-August period, down 1% from 7.31 million a year ago.

Vehicle manufacturers may have ramped up production in August in anticipation of increased demand.

Toyota Motor Philippines, Inc. (TMP) First Vice-President for Corporate Affairs Josephine Villanueva said production is also driven by market requirements.

“We have been placing greater importance in providing the best Toyota ownership experience to our customers. As the customer requirements continue to evolve, we ensure that we provide value-chain offerings suited to the needs of the Filipino market,” she said in a Viber message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said higher vehicle sales might have also spurred manufacturers to ramp up production.

“For the coming months, rate cuts could further reduce borrowing costs, thereby further supporting demand for auto and motorcycle loans that could, in turn, lead to faster growth in vehicle and motorcycle sales and production,” he said in a Viber message.

Last week, TMP President Masando Hashimoto cited cooling inflation, strong remittances from overseas Filipino workers and interest rate cuts as revenue drivers.

In the AAF report, the Philippines had the third-fastest growth in motor vehicle sales in the first eight months at 10.3% to 304,765 units.

Meanwhile, motorcycle and scooter sales grew 4.9% in the January-to-August period to 1.1 million, representing the fastest growth in the region.

Region-wide, motor vehicle sales declined by 7.7% to 2.02 million, while motorcycle sales were almost flat (0.3%) at 6.98 million. – Justine Irish D. Tabile, Reporter