COMMUTERS line up early at the EDSA Bus Carousel in Quezon City, June 21. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

By Lourdes O. Pilar, Researcher

THE Philippine economy likely grew at a slower pace in the second quarter as surging inflation may have affected consumer spending.

A BusinessWorld poll of 18 economists and analysts last week yielded a median gross domestic product (GDP) growth estimate of 7.5% for the April-June period, easing from the 8.3% growth in the first quarter and 12.1% in the same period a year ago.

If realized, the figure would put average growth at 7.9% in the first half, above the government’s 6.5-7.5% full-year target.

Analysts’ Q2 2022 GDP estimates

Official second-quarter GDP data will be released on Aug. 9, alongside factory output and international merchandise trade statistics for the month of June.

Analysts said robust household spending likely drove second quarter economic growth, but this may have been hurt by rising inflation. In June, inflation rose to a near four-year high of 6.1%, the third straight month it exceeded the Bangko Sentral ng Pilipinas (BSP) 2-4% target band, as prices of food and fuel continued to spike.

Private sector spending accounts for about 75% of the country’s economic output annually.

Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, estimated 8.8% growth in the second quarter as household spending were driven by election-related expenditures. 

“Relaxed mobility curbs may have helped accommodate expenditures on items related to revenge spending: hotels and restaurants and recreation & culture. Capital formation also expected to provide a boost with imports of capital equipment posted solid gains for the quarter,” Mr. Mapa said in an e-mail.

However, this may have been offset by the ballooning trade deficit and elevated inflation, he added.

Ruben Carlo O. Asuncion, chief economist from UnionBank of the Philippines said GDP likely expanded by 7.2% in the April to June period, mainly due to strong consumption growth.

“We think that previous quarter’s economic growth and recovery have spilled over in second quarter even amid rising inflation and monetary policy hikes,” said Mr. Asuncion in an e-mail.

The BSP began its tightening cycle in May with a 25-basis point (bp) hike in May, followed by another 25-bp rate increase in June and an off-cycle 75-bps rate hike in July. The Monetary Board has raised benchmark interest rates by a total of 125 bps so far this year.

Mr. Asuncion also noted manufacturing recovery continued in the second quarter, and that overseas Filipino workers’ (OFW) remittances’ purchasing power remained intact.

“Overall, people movement have continued to be positive and above the baseline as the economy proceeds to more reopening,” he said.

Most parts of the country remained under the most lenient alert level during the second quarter.

OFW cash remittances grew 2.5% to $12.592 billion as of May, while the S&P Global Philippines Manufacturing Purchasing Managers’ Index showed continued expansion in June.

Miguel Chanco, chief emerging Asia economist of Pantheon Macroeconomics, said he expects a modest slowdown in year-on-year growth to 8.1%.

“The largely trivial slowdown from 8.3% in Q1 owes largely from a favorable base effect — remember that the economy contracted marginally in Q2 2021 — which we think will mask yet another contraction in the quarter just passed,” Mr. Chanco said in an e-mail.

“Underlying our projection for a quarter-on-quarter contraction is a marked slowdown in the momentum in household spending, a significant pullback in government spending (related mainly to the natural pause button hit by the election), and a much larger drag from net trade.”

The country posted a trade deficit of $24.922 billion in the five months to May, with imported goods growing by 29% versus the 8.4% growth of merchandise exports in the same period. 

Domini S. Velasquez, chief economist at China Banking Corp., who pencilled in an 8.2% GDP growth, said in an e-mail that the economy continued to gain momentum as it recovers from the pandemic.

“Revenge spending and domestic travel were clearly evident in second quarter as COVID-19 (coronavirus disease 2019) cases due to the Omicron variant in the preceding quarter waned,” she said in an e-mail.

Ms. Velasquez said the second-quarter figure may have received a boost from election spending, the return of business process outsourcing workers to offices and “very favorable” employment rates.

“Robust domestic tourism and mobility gauges in retail spots also appear to confirm that revenge spending and retail therapy will likely be behind a potentially strong print despite headwinds emanating from the Russia-Ukraine war and the cumulative 50-bp BSP rate hikes in May and June,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in an e-mail. 

Headline inflation averaged 4.7% from January to July, settling above the government’s 2-4% target but below the 5% forecast for the year. 

Economists, however, warned the country’s economic output growth for the rest of the year may be tempered by the impact of the BSP’s aggressive policy tightening.

“We expect year-on-year growth to moderate over the course of the year given the less favorable base effect. Sequentially momentum will also be moderate given higher prices, weaker global trade, and less scope for catch-up as most restrictions are now removed,” Makoto Tsuchiya, assistant economist from Oxford Economics Japan, said in an e-mail.

“We expect the effect of monetary tightening to start kicking in towards the end of the quarter, with the impact to be more evident in 2023,” he added.

BSP Governor Felipe M. Medalla has already signaled another rate hike of 25 or 50 bps at the next meeting on Aug. 18 to tame inflation.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said rising long-term and short-term interest rates would be a drag on domestic economic growth in the next few months. He estimated GDP growth to settle at the lower-end of the government’s 2022 target at 6.5% this year.

“We expect economic growth in second half of 2022 may be softer than first half because of higher inflation impact and rising interest rates,” he said.

Security Bank Corp.’s Chief Economist Robert Dan J. Roces said the spillover effects of inflationary pressures and geopolitical headwinds may be felt in the third quarter.

“(This may) continue to constrain private consumption’s full potential and thus slow down growth. However, recent trends have shown commodity prices settling in a new, lower range, and as such may provide price relief by fourth quarter in time for the peak consumption season,” Mr. Roces said.

Economic managers are targeting 6.5-7.5% GDP growth this year.

The World Bank pencilled in a 5.7% full-year growth for the Philippines; while the International Monetary Fund expects 6.7% expansion. The Asian Development Bank and Fitch Ratings see 6.5% growth for the Philippines this year, while Moody’s Investors Service gave a 7.2% projection.

“For the rest of the year, we think that despite challenges of high inflation and weaker external demand, the economy is still poised to post a healthy growth of around 7%,” Ms. Velasquez said.   

Mr. Neri said his full year GDP growth estimate remains at 6.7%.

“However, the stepped up COVID-19 booster rollout will likely soften the blow of external headwinds. The return of primary school students to face-to-face classes will likely underpin a stronger-than-expected consumption recovery. This can somehow mitigate the negative impact of elevated prices, policy rate hikes, global growth slowdown, among others on domestic consumer confidence during the second semester,” he said.