By means of Aubrey Rose A. Inosante, Reporter
THE PHILIPPINE economy grew by a weaker-than-expected 5.2% in the third quarter as bad weather hurt agricultural output and government spending, the statistics agency said Thursday.
Preliminary data from the Philippine Statistics Authority (PSA) shows that Philippine gross domestic product (GDP) grew at an annualized rate of 5.2% from July to September, a slowdown from the revised growth rate of 6.4% in the second quarter and 6% per year. past.
This was also the weakest growth in Ffive quarters or since the 4.3% expansion in Q2 2023.
It was also below the average forecast of 5.7% in a Business world opinion poll among twelve economists and analysts.
On a quarterly seasonally adjusted basis, GDP grew by 1.7%, up from 0.7%.
Despite the slower growth, Mr. Balisacan said the Philippine GDP print in the third quarter is still the second fastest in the region after Vietnam (7.4%).
“Our economy continues to grow steadily; the most recent GDP FNumbers indicate continued expansion,” writes National Economic and Development Authority (NEDA) Secretary Arsenio M. BaliSacan said to a brieFon Thursday.
Philippine GDP growth from July to September was better than that of Indonesia (4.9%), China (4.6%) and Singapore (4.1%).
Through the first nine months of the year, Philippine GDP growth averaged 5.8%, slower than the 6% a year ago. This was slightly less than the government target of 6-7% growth this year.
“The economy needs to grow by at least 6.5% to meet the government’s target for the last quarter of 2024. We remain optimistic that this growth target is achievable,” Mr. Balisacan said.
He attributed the weaker-than-expected growth in the third quarter to the impact of a series of typhoons on the agricultural sector.
Agriculture, forestry and fishing contracted 2.8% in the third quarter, a reversal of growth of 0.9% a year ago. The sector accounts for about one-tenth of Philippine economic output.
“The crops sub-sector of the agricultural sector recorded a year-on-year decline of 2.8%Fstudying the consequences of the El Niño phenomenon during the planting season and the eFfects of seven typhoons, in addition to the Habagat (monsoon), during the harvest season,” Mr. Balisacan said.
He noted the combined agricultural damage and losses from the six typhoons in the third quarter and the recent severe tropical storm Kristine, which reached P15.8 billion.
At the same time, the industrial sector grew 5% in the third quarter, a slowdown from 5.6% a year ago due to base effects. Growth in the construction sector slowed to 9%, compared to 14.5% a year ago.
The range of services grew by 6.3% in the period July to September, compared to 6.8% in the same period in 2023.
“The successive typhoons have suspended classes and work in government and some private offices, leading to administrative delays and supply chain disruptions,” Mr. Balisacan said.
CONSUMPTION IS RISING
Meanwhile, household consumption, which makes up more than 70% of the economy, rose at an annual rate of 5.1% from July to September, an improvement from 4.7% in the second quarter but stable from a year ago.
“Household spending in particular is a bright spot: it is growing by 5.1%, faster than the past two quarters, due to lower inflation. The recent interest rate cuts and reduction in reserve requirements could help inject more liquidity into the economy and increase the purchasing power of our people,” Treasury Secretary Ralph G. Recto said in a statement.
Mr. Balisacan noted that there was a slowdown in tourism and leisure spending as typhoons caused the cancellation of 138 flights in the third quarter.
Gross capital formation, the investment component of the economy, grew 13.1% in the third quarter, a turnaround from the 0.3% decline a year ago.
“The turnaround in investments in sustainable equipment mainly led to the growth of capital investments. The private construction sector also experienced double-digit growth (11.9% from 10.3%), while the public construction sector slowed (3.7% from 21.7%) due to administrative delays and disruptions in related to adverse weather conditions,” said Mr. Balisacan.
Government spending growth slowed sharply to 5% in the third quarter, compared with 11.9% in the previous quarter.
“The climate-related disruptions and disruptions that occurred in the past quarter have delayed these (government) expenditures. And this is even more true for those related to infrastructure,” Mr. Balisacan said.
Exports of goods and services shrank 1% in the third quarter, a reversal from 2.5% growth a year ago.
Imports of goods and services rose 6.4% in the period ending in September, an improvement from the 1.6% decline a year ago.
“This implied a deep contraction in net exports of 32.6%. Goods exports were depressed by the sharper decline in electronics products, especially semiconductors, with a decline of 17.9%,” Balisacan said.
He said the sector is “undergoing inventory corrections and still needs to meet the demand for new products in the global market.”
Economic managers are optimistic about faster growth in the fourth quarter as consumer spending is expected to pick up during the holiday season.
“We expect increases in holiday spending, more stable commodity prices (given low inflation), lower interest rates and a robust labor market. In the typhoon-affected areas, recovery efforts will stimulate economic activity and hopefully build back better,” Balisacan said.
Mr Recto said he expects the private construction sector to recover amid lower interest rates.
Since August, the Bangko Sentral ng Pilipinas (BSP) has cut interest rates by 50 basis points (bps) this year, bringing the policy rate to 6%.
‘HUGE DISAPPOINTMENT’
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the third-quarter GDP print was a “huge disappointment,” although it was better than the 4.8% forecast.
“For now, we are sticking with our forecast that full-year GDP growth will decline from 5.5% in 2023 to 5.4% this year, implying that overall growth in the fourth quarter will continue to slow to around 4 .5%,” he said. in a report.
Shivaan Tandon, market economist at Capital Economics, said GDP growth is unlikely to continue as “slower remittance growth, fiscal policy and weaker export demand weigh on activity.”
“While the worst is likely over for private consumption in the Philippines, we doubt this pace of consumption growth is sustainable. Admittedly, a continued boost from lower inflation and looser monetary policy should support consumption,” Tandon said.
Mr Tandon said downside risks to domestic demand have increased as the US dollar is expected to strengthen.
“This raises the risk that the BSP, which is arguably more Fed-centric than other central banks in Asia (with the exception of Bank Indonesia), will opt for fewer rate cuts than would otherwise have been the case,” he said.
He noted that exports will remain under pressure as the global economy slows and the outlook remains clouded by possible tariffs that newly-elected US President Donald Trump will impose.
On the other hand, economists at ANZ Research said private consumption is likely to improve further as the unemployment rate fell to 3.7% in September and real wages showed growth in the third quarter.
“The resilience of the Philippine labor market and steady growth in remittances will, in our view, moderately support personal consumption going forward. We emphasize ‘moderate’ because the stable labor market is partly offset by the need for households to rebuild their savings, as reflected in the household confidence index,” said ANZ Research’s economist Arindam Chakraborty and chief economist Sanjay Mathur.
However, ANZ Research economists say exports are likely to remain subdued in the near term amid weak external demand.
“Overall, given the favorable near-term inflation outlook and softer GDP growth in the third quarter of 2024, we think the BSP will cut rates by a further 25 basis points in December 2024,” ANZ Research said.
BSP Governor Eli M. Remolona Jr. announced a possible 25 bp interest rate cut in December. If achieved, this would bring the benchmark to 5.75% by the end of 2024.