By Lourdes O. Pilar, Researcher

PHILIPPINE economic growth likely picked up in the first quarter from the prior three-month period amid strong private consumption and government spending, but elevated inflation and interest rates could have hampered expansion, analysts said.

A BusinessWorld poll of 20 economists and analysts conducted last week yielded a median gross domestic product (GDP) growth estimate of 5.9% for the first three months of 2024.

If realized, this would be faster than the preliminary 5.5% growth recorded in the previous quarter but slower than the 6.4% expansion logged in the first quarter of 2023.

Q1 2024 GDP growth forecast

However, the median estimate is a tad lower than the government’s 6-7% GDP growth target for the year.

The Philippine Statistics Authority (PSA) will release first-quarter GDP data on May 9, Thursday.

Public and private spending likely drove economic expansion in the first three months of the year, although high inflation, which has caused the central bank to remain hawkish, continues to be a drag on growth, analysts said.

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said that despite the tough global environment, the Philippines likely continued to outperform its peers in the region last quarter.

“Leading indicators show that consumption, the bulwark of Philippine GDP, remained robust. The economy continues to be in a labor boom, while the household saving rate is still lower than pre-pandemic levels to help make up for the higher cost of living,” Mr. Dacanay said in an e-mail.

“Government spending rose year on year. Learning from last year’s low utilization rate, agencies made it a priority to spend their budget more efficiently in 2024,” he added.

Exports also remained resilient, he said.

Data from the Bureau of the Treasury showed that government spending picked up by 10.72% to P1.206 trillion in the first quarter from P1.09 trillion in the same period in 2023.

Meanwhile, merchandise exports dropped by 15.6% to $10.33 billion in the first two months of 2024, while imports declined 3.9% to $19.94 billion.

This caused the trade deficit to widen to $9.61 billion in the period from the $8.5-billion gap a year prior.

Infrastructure spending may have provided a boost to economic growth in the period, Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez added in an e-mail.

For the first two months of the year, infrastructure spending went up by 6.7% to P120.5 billion from P113 billion in the same period a year ago, data from the Budget department showed.

The government is targeting to sustain infrastructure spending of up to 5-6% of GDP annually. The Marcos administration has approved the implementation of its flagship infrastructure program comprised of 185 projects worth P9.14 trillion.

Meanwhile, Makoto Tsuchiya, assistant economist at Oxford Economics, said the contributions of exports and private spending to growth in the first quarter may have been minimal due to a challenging global environment.

“On the annual term, exports likely recovered from a contraction in the fourth quarter, largely supported by favorable base effects. Bumpy but stronger semiconductor exports also likely boosted the headline figure. Meanwhile, private consumption likely remained soft as consumers’ outlook turned bleak. Private investment also likely remained sluggish, hampered by soft external demand,” Mr. Tsuchiya said in an e-mail.

“Household consumption edged higher as inflation further eased during the period. GDP growth was also supported by a recovery in exports, led by the semiconductor industry. On the supply side, all sectors recorded positive growth rates, with services primarily powering the economy,” China Bank Research said in an e-mail.

“However, the high interest rate environment continued to challenge private construction activities, while agricultural production was adversely affected by El Niño,” it added.

Philippine headline inflation averaged 3.3% in the first quarter, slower than the 8.3% average in the same period last year. This was likewise below the Bangko Sentral ng Pilipinas’ (BSP) 3.8% forecast and within its 2-4% target for the year.

The central bank last month left its policy rate unchanged at a near 17-year high of 6.5% for a fourth straight meeting and signaled a possible delay in rate cuts due to inflation risks.

BSP Governor Eli M. Remolona, Jr. earlier said upside risks to inflation have worsened, making them more hawkish than before. He added that rate cuts may begin in the fourth quarter of this year or in the first quarter of 2025, depending on how price risks pan out.

Michael Wan, MUFG senior currency analyst for Global Markets Research, likewise said in an e-mail that private consumption likely showed gradual improvement last quarter amid slower inflation, a resilient labor market, and a pickup in tourism spending.

“Nonetheless, growth remains capped by still high interest rates coupled with upside risks to inflation including on food prices. We are now forecasting the first BSP rate cut from first quarter of 2025, pushing it out from third quarter of 2024 previously, to help curb excessive volatility in the Philippine peso,” Mr. Wan said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. said in an e-mail that the Philippine economy likely grew “below potential” amid “the drought’s effects on farm output and inflation, sustained net pessimism among households and businesses in the latest BSP surveys, while missing the strong fiscal spending stimulus, amid the familiar setting of high interest rates and credit tightness.”

For 2024, economic expansion is expected to remain strong but remain below the government’s target amid persistent headwinds, said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

“Downside risks will remain from still-sluggish overseas demand amid soft demand from advanced economies and concerns of China’s economic prospects. Lagged effects from previous monetary policy tightening and tightened financial conditions will also continue to weigh on economic prospects,” Ms. Taguchi said in an e-mail.

“Looking ahead, we anticipate that the Philippine economy has a higher growth potential this year, supported by easing inflationary pressures, a recovery in fiscal spending and exports, and possible monetary easing in the latter part of the year,” China Bank Research added.

Meanwhile, Oxford Economics’ Mr. Tsuchiya expects Philippine GDP growth to average 5.2% this year, well below the government’s target.

“With heightened geopolitical conflicts in the European and Middle East causing pressure on some commodity prices and climate change effects such as El Niño disrupting agricultural yields, increased heat is pushing energy demand higher, causing higher prices, thus keeping inflation elevated… This will mean higher interest rates for a bit longer than anticipated. This could keep growth from reaching the government’s [full-year] target. However, increased infrastructure spending could mitigate the effects,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., added in a Viber message.