Poll: GDP growth likely cooled in Q3

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