Pedestrians cross the street in Cubao, Quezon City, April 25, 2024. — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Beatriz Marie D. Cruz, Reporter

THE PHILIPPINE ECONOMY should expand by more than 6% in the next three quarters to meet the government’s growth target this year, analysts said.

“The Philippines needs to grow almost 6.1% for the remaining three quarters to reach 6% growth for the entire year, which appears to be a tall order, particularly given the slowdown in household spending in quarter one and the subdued global economic backdrop this year,” Makoto Tsuchiya, an economist at Oxford Economics Japan, said in an e-mail.

Philippine gross domestic product (GDP) grew by 5.7% in the first quarter, slightly faster than the 5.5% in the fourth quarter of 2023 but below the government’s 6-7% target.

University of Asia and the Pacific Senior Economist Cid L. Terosa said GDP growth should average 6-6.5% for the rest of the year to hit the lower end of the government’s target band.

“We had always been expecting growth to stay subdued largely due to the ‘triple threat’ faced by the economy. Elevated inflation, high borrowing costs and fiscal consolidation are the troika of challenges we face,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

Household spending, which accounts for nearly three-fourths of economic output, rose by 4.6% in the January-to-March, the slowest since the coronavirus pandemic and weaker than 5.3% in the fourth quarter and 6.4% a year ago.

Mr. Tsuchiya said private consumption lagged due to “economic-wide” pressures on spending in the first three months of the year.

“We believe the softening in household consumption was due to a combination of elevated inflation, tepid confidence and the impact of monetary tightening,” Mr. Tsuchiya said.

Inflation quickened to 3.8% in April amid rising food and transport costs. April was the third straight month that inflation accelerated.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan has said household spending was tempered by higher food costs and the El Niño dry weather. Agricultural damage caused by El Niño has reached P5.9 billion, according to the Department of Agriculture.

Private consumption in the first quarter also reflected consumers’ weaker purchasing power and real income amid persistent inflation, Mr. Terosa said.

High interest rates have also restrained economic activity, according to analysts.

The Bangko Sentral ng Pilipinas (BSP) has kept policy rates at a 17-year high of 6.5% since October 2023 to curb inflation.

“Households are also faced now with a much higher level of debt, with consumers forced to borrowing on their credit cards and through salary-based loans just to make ends meet,” Mr. Mapa said.

He also noted that consumer savings have yet to recover to pre-pandemic levels, citing the BSP’s latest Consumer Expectations Survey.

The central bank earlier said it would consider first-quarter GDP growth at its policy review on Thursday.

Household spending, while improving on a quarterly basis, has yet to return to pre-pandemic levels, Pantheon Macroeconomics said. It also noted that remittance growth could only provide limited support for consumer spending.

“Remittance growth — in peso terms — is unlikely to provide much support this year, if any; consumer confidence is deteriorating rapidly; and finances remain very fragile due to the multiple hits to savings since 2020,” it said.

Despite this, Pantheon Macroeconomics noted that the latest GDP figure is not alarming enough for the central bank to cut policy rates. It expects the BSP to start easing in August, with 75 basis points worth of cuts this year.

Mr. Mapa said higher borrowing costs also weighed on investments, as seen in the 1.3% growth in the first quarter from 11.6% in the previous quarter.

“Construction was boosted nicely by double-digit growth of public construction, but private construction remains relatively lackluster with only single-digit growth,” he said. “Some may attribute this to changes post-pandemic. However, I believe it will be hard to ignore the role of elevated borrowing costs in the investment picture.”

Growth in state spending also slowed to 1.7% in the first quarter.

“National Government spending was always expected to stay soft with fiscal authorities in consolidation mode and as they move to lower debt levels relative to GDP,” Mr. Mapa said.

However, GDP growth could pick up in the second quarter due to base effects, Mr. Tsuchiya said.

Pantheon Macroeconomics said first-quarter growth was “firmer than expected,” thus raising its full-year GDP forecast to 5.2% from 4.8%. However, this is still lower than the 5.5% growth posted last year.

“In the coming months, particularly up to the end of the second quarter, inflationary pressures, the high interest rate environment, geopolitical tensions and global economic apprehensions will continue to cast a shade on Philippine economic performance,” Mr. Terosa added.

Mr. Mapa estimates full-year GDP growth to settle at 5.4%, below the government’s target. “Business sentiment is less favorable. However, we could see a rebound should we tackle the triple threat effectively.”