Signs of economic resilience despite slowdown 

Getting the economy roaring back to life proves to be challenging. We now expect full-year growth to settle at around 5.7% year-on-year (YoY), lower than what we projected earlier, but still substantial.

While the economy still demonstrates strength in various sectors and adapts to market conditions, there are factors that we need to understand and monitor.

A tired consumer

We’re well aware of the importance of household spending to the overall growth story. For the most part of the reopening, growth has been carried by torrid revenge spending as lockdowns were lifted.

Of late, however, we’ve noted a sustained buildup of household debt and lower savings. The end result has been consumption stumbling to the slowest pace of expansion since 2011 and souring consumer sentiment. Can we expect household consumption to bounce back in a big way?

For now, we may need to look to other sectors for growth as households work through their balance sheets.

Investments: the missing link

Gross domestic product (GDP) growth slipped to 5.5% YoY, missing a watered-down growth target due to softer government spending and lower investment outlays.

In particular, it will be surprising to note that capital formation is the only sector that has yet to revert to 2019 levels, convincing us that investments remain the missing link to the full recovery of the Philippines.

Elevated interest rates have kept investment activity capped of late, but with the Bangko Sentral ng Pilipinas (BSP) taking on a more dovish tone, could we see capital formation join the recovery party?

Make growth great again?

All of these signs point to growth motoring along at a 5.7% YoY clip, which for all intents and purposes can be viewed as good. A challenged consumer and still lackluster investments may lead to GDP underperforming potential.

However, other signs such as slower inflation could give households breathing room to repair balance sheets, while a projected one-two-three rate cut punch before year end could likewise reinvigorate investments momentum.

These two developments could help the Philippines salvage a “good” growth rate this year, while looking forward to an acceleration for 2025.

NICHOLAS MAPA is Metrobank’s Chief Economist, Market Strategist, and Head of the Research and Market Strategy Department in the Financial Markets Sector. He graduated from the University of Asia and the Pacific (UA&P) with an undergraduate degree in Humanities and a Master of Science (MSc) in Industrial Economics. He also completed an MA in Economics from Vanderbilt University and an MBA from the Kelley School of Business at Indiana University. He travels regularly with his family, enamored by culture and history. An avid learner, he also reads extensively.