Poll: PH economy shows 'sharp' slowdown in Q1

Metro Manila (CNN Philippines, May 9) — The Philippine economy may have recorded weaker growth in the first quarter of 2023, with some analysts even noting a “sharp” slowdown as high inflation and expensive borrowing costs hurt private consumption.

A CNN Philippines poll of 10 economists showed forecasts ranging from 4.40% to 7.40%, averaging 6.04%—losing momentum from 7.1% in the fourth quarter of 2022.

The survey also yielded a median gross domestic product (GDP) growth estimate of 6.2%.

According to Oxford Economics Assistant Economist Makoto Tsuchiya, consumer spending—the most critical driver of the GDP—might have started waning in the first quarter with the rising commodity prices continuing to haunt and impact Filipinos’ purchasing powers.

“We think the sequential momentum for private consumption, the biggest component of GDP, to have slowed amid fading reopening boost, higher interest rates as well as inflation,” Tsuchiya, who saw a 4.4% growth, said in an email interview.

Pantheon Macroeconomics’ chief emerging Asia economist Miguel Chanco, who expects a 4.8% growth, sees the same reason behind weaker economic expansion.

“Most of this slowdown will be due mainly to a loss in momentum in private consumption, the Philippines’ main growth driver… The outlook for Filipino households remains challenging, even though most of the surge in inflation is in the past,” he said.

For the first two months of the year, the country’s inflation rate soared to as high as 8.6%, before cooling down to 7.6%—still elevated, but already the lowest in six months.

As inflation threats continued, the Bangko Sentral ng Pilipinas maintained its aggressive stance, pushing the interest rates to 6.25%, the highest since November 2008.

Hiking interest rates translates to more expensive borrowings for business capital or consumers’ car and house loans.

BSP Governor Felipe Medalla previously said that following the central bank’s moves, they already witnessed a tightening of belts in housing loans.

Chanco warned that the effects of surging inflation and rate hikes would “continue to be felt this year.”

“Moreover, the surge in household borrowing last year that helped keep spending fairly punchy appears already to have peaked, and is unlikely to be replicated in 2023,” he added.

For Ser Percival Peña-Reyes, director of the Ateneo Center for Economic Research and Development, the recent developments on inflation, with the rate dropping to 6.6% in April, might ease the pressure on the BSP to increase interest rates.

However, he said that it remains “doubtful” if the Philippines could hit the government’s 2% to 4% target range amid inflation risks from El Niño, which poses threats to food production.

Reyes, who projected a 7.4% quarterly growth, expressed optimism that the country’s economic target for 2023 is still “attainable.”

The Marcos administration has set a target of 6% to 7% this year. But Union Bank of the Philippines, Inc. chief economist Ruben Carlo Asuncion said hitting the target could be “a challenge to reach” following a decline in exports and imports and weaker domestic consumption.

Asuncion expects the Philippines’ economy to average at 5.6% against last year’s 7.6%.

Sarah Tan, an economist in Moody’s Analytics, likewise provided a slower growth outlook at 5.7%.

“A weak export outlook will be a key drag as slowing global growth will squash demand for the country’s goods. Further, domestic demand is likely to gradually slow as households feel the pinch from BSP’s whopping 425 basis points of rate hike. Monetary policy typically works with a lag and households could feel the pain for longer,” she said.

The Philippine Statistics Authority is scheduled to release the first-quarter GDP data on Thursday, May 11.