PH economy grows faster than expected in Q3

The Philippine economy grew faster than expected in the third quarter, with government spending doing much of the heavy lifting as inflation dragged household consumption to its weakest growth in two years.

Gross domestic product (GDP), or the sum of all goods produced and services rendered in an economy, grew 5.9 percent year-on-year in the July-September period, stronger than the 4.3 percent annual expansion in the preceding three months, the Philippine Statistics Authority (PSA) reported on Thursday.

The latest reading smashed analysts’ expectations that had pegged growth last quarter between 4.3 and 4.9 percent. On a quarter-on-quarter basis, GDP grew 3.3 percent, a turnaround from the 0.7 percent slump in the April-June period.

The forecast-beating growth brought good news to a country battling stubbornly high consumer prices.

From January to October, the average inflation rate soared above the government’s 2-4 percent target at 6.4 percent and has been hitting the economy where it hurts the most: consumer spending.

What saved the economy from another slowdown was government spending, which grew by 6.7 percent during the quarter, going largely to infrastructure. That uptick reversed the 0.7-percent contraction in the second quarter and was responsible for 36 percent of GDP growth in the third quarter, thanks to recent government efforts to compensate for underspending.

Reviving consumption

PSA data showed that household consumption grew 5 percent year-on-year in the third quarter, slower than the 5.5-percent expansion seen in the April-June period.

National Statistician Claire Dennis Mapa said the last time consumer spending fell below 5 percent was in the first quarter of 2021, when it crashed 4.8 percent year-on-year at the height of pandemic lockdowns.

While inflation softened to 4.9 percent in October from a four-month high of 6.1 percent in September, Socioeconomic Planning Secretary Arsenio Balisacan said rising prices remained the biggest threat to a country where household consumption historically accounted for 80 percent of its economic output.

Nevertheless, Balisacan said he believed the Marcos administration could still hit its growth ambitions.

As GDP growth averaged 5.5 percent in the first three quarters, the economy would have to expand by 7.2 percent in the fourth quarter to attain at least the low end of the government’s 6 to 7 percent growth target for this year.

“Inflation is key to the revival of the most growth in consumption,” Balisacan told a press conference, adding that the challenge for the government now was to sustain the decline in price growth.

Economic drag

However, some analysts do not share the same optimism.

Euben Paracuelles, economist at Nomura, said he expected slower growth momentum to return in the fourth quarter despite the seasonal surge in demand during the holiday season.

“We think private consumption growth will continue to soften due to weakening household sentiment, as was evident in today’s data,” Paracuelles said in an emailed commentary, adding that the aggressive rate hikes by the Bangko Sentral ng Pilipinas to tame inflation were already prompting consumers and businesses to rethink their big-ticket purchases and investments.

“Private investment spending, including durable equipment, has been more lackluster, which we believe will be increasingly constrained by a high-interest rate environment that will likely persist,” he added.

Gareth Leather, senior Asia economist at Capital Economics, agreed with Paracuelles.

“With the drag from higher interest rates yet to filter through the economy in its entirety and global demand likely to weaken, we expect below trend and below consensus growth in the coming quarters,” Leather said.

Long-term reforms

Reacting to the better-than-expected economic performance, Albay Rep. Joey Salceda on Thursday said the GDP growth in the third quarter had placed President Marcos “in a position of strength” that would enable him to put in place long-term reforms.

Salceda noted that Marcos would have “more tools to work with” in sustaining economic growth.

“With inflation back under control and growth back on track, President Marcos has the space and the opportunity to work on policies and priorities that are forward-looking,” the lawmaker pointed out.

He noted that government spending was the key driver of growth recovery in the third quarter, which resulted in high construction sector growth.

“We have to sustain the government’s spending catch-up plan, especially at the local government unit level. Budgeted programs and plans there were put on hold because the Barangay and Sangguniang Kabataan election-spending ban should be pursued vigorously to completion this year,” he said.

Likewise, Salceda also observed that mining grew by 4.5 percent, its best performance since the third quarter of 2022.

However, the Albay lawmaker pointed out that the country needed “to keep working on agricultural growth.”

—WITH A REPORT FROM JEANNETTE I. ANDRADE