COMMUTERS pass through a walkway in Recto, Manila, Aug. 25. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

THE PHILIPPINE ECONOMY likely expanded at a slower pace in the third quarter, as high inflation, monetary policy tightening, and the peso depreciation dampened consumer spending.

Gross domestic product (GDP) grew by 6.1% in the July-September period from a year ago, according to the median forecast of 16 analysts in a BusinessWorld poll last week.

If realized, this would be slower than the 7.4% GDP growth in the second quarter and 7% seen in the same quarter of 2021.

Analysts’ Q3 2022 GDP estimates

This would bring the nine-month average GDP expansion to 7.2%, still within the Development Budget Coordination Committee’s (DBCC) 6.5%-7.5% full-year target.

Third-quarter GDP data is scheduled to be released by the Philippine Statistics Authority (PSA) on Nov. 10.   

Economic growth may have been hurt by accelerating inflation, the peso’s depreciation against the US dollar, and rising interest rates, according to analysts.

Security Bank Corp. Chief Economist Robert Dan J. Roces, who penciled in a 5.2% GDP for the third quarter, said slower growth was “mostly due to headwinds posed by inflation and the peso’s weakness.”

“These dampened the potential growth of private consumption which is around 72% of the GDP. Nonetheless, the government did not impose new mobility restrictions, allowing economic activities to continue despite the challenges, underscoring a still sustained recovery for the economy and likely still decent growth figures,” Mr. Roces said in an e-mail. 

Inflation quickened to 6.9% in September, bringing the third-quarter average to 6.5% — well above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band.

For the January to September period, headline inflation stood at 5.1%, below the BSP’s full-year projection of 5.6%.

Quarter on quarter, the peso depreciated by 6.64% or P3.65 to P58.62 from June 30’s finish of P54.98.

China Banking Corp. Chief Economist Domini S. Velasquez sees third-quarter GDP at 6.2%, weighed down by a dimmer external outlook, and a high inflation and interest rate environment.

The BSP raised its overnight borrowing rate by 50 basis points (bps) at its September meeting. Since May, the central bank raised key rates by 225 bps to tame inflation.

“On a positive note, tourist arrivals improved in the third quarter, contributing to the consumption of services such as air transport, accommodation, and the like. We also saw that big-ticket items such as auto sales continue to defy a high interest rate environment,” Ms. Velasquez said in an e-mail, adding that real estate will not be “shockproof.”

Rising prices may have also prompted consumers to cut spending on non-essential goods and services, she added.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said elevated inflation may have contributed to a “noticeable slowdown” in household consumption despite the resumption of face-to-face classes. He also noted slower remittances may have dragged overall consumer spending.

On the other hand, Mr. Neri said upside risks to the forecast included sustained growth in the S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI), strong vehicle sales, low unemployment rate and rising growth in bank credit.

However, Pantheon Chief Emerging Asia Economist Miguel Chanco, who sees 4.6% GDP growth in the third quarter, said this sharp slowdown is partially because of the “unfavorable base effect as the third quarter last year was quite punchy.”

“Fundamentally, though, the report will reveal more starkly the weakness in household spending, which, if you can recall, fell sharply quarter on quarter on a seasonally adjusted basis in the second quarter,” Mr. Chanco said in an e-mail. 

In the second quarter, household final consumption was smaller at 68.2% of the GDP, versus the previous quarter’s 75.3% and third quarter 2021’s 73.3%.

Economist Makoto Tsuchiya of Oxford Economics said monetary policy rate hikes most likely weighed down domestic demand.

“While we expect sequential rebound in household spending after a contraction in Q2, high commodity prices, supply chain stress, and weaker peso contributed to keeping imports prices elevated, which reduced consumers’ real purchasing power,” Mr. Tsuchiya said in an e-mail.

Meanwhile, analysts expect a further slowdown in the fourth quarter, bringing their full-year GDP estimates to between 5% and 7.6%.

Maybank Investment Bank Chief Economist Suhaimi Bin Ilias said GDP growth is seen to slow to 5% in the fourth quarter. He expects full-year GDP expansion to settle at 6.5%, the low end of the government’s target.

“Nevertheless, easing of mobility restrictions and resumption of face-to-face school session in August 2022 (in stages and fully implemented by November 2022) are expected to further induce pickup in domestic demand and may push growth in the fourth quarter higher than expected,” Mr. Ilias said in an e-mail.

Pantheon’s Mr. Chanco said he is keeping its 2.8% year-on-year fourth quarter forecast for now, “implying full-year growth of just 5.6%.”

De La Salle University economist Mitzie Irene P. Conchada said 2022 growth may settle between 5-6% “despite starting strong at the beginning of the year.”

“Moving forward, we expect growth to further slow down in the coming quarters and for GDP growth next year to fall short of the government’s target. A global slowdown, aggressive monetary tightening, and reduced government spending will temper GDP growth in 2023,” China Bank’s Ms. Velasquez said.

The government is targeting 6.5-8% GDP growth for 2023. — Ana Olivia A. Tirona