Analysts paint slower Q3 economic growth amid high inflation, weak peso

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Metro Manila (CNN Philippines, November 8) — The Philippines' economic growth likely slowed in the third quarter due to rising inflation and the plunging peso, affecting consumers' purchasing power.

A CNN Philippines poll of 12 economists showed forecasts ranging from 4.60% to 7.70%, averaging 6.12% - a weaker expansion than the 7.4% growth in the second quarter.

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

Economists said that while the Marcos administration's decision to do away with COVID-19 lockdowns has been a major boost to pump up the economy, current headwinds in both the local and international scenes remain a risk to the country's growth prospects.

Majority of them flagged skyrocketing prices, the weakening of the Philippine peso, and global disruptions like Russia's invasion of Ukraine, as among the top threats that could drag economic growth.

Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco, who sees a "sharp slowdown" in the GDP to 4.6%, said inflation woes continued to hurt Filipinos' purchasing power in the third quarter.

"The bad news is that the sharp slowdown will tell a more realistic picture of the weakening state of private consumption, the key driver of the economy. It's worth bearing in mind that household spending contracted outright on a quarterly seasonally adjusted basis in Q2, well before the acute pinch of inflation in Q3," he said.

Also sought for his insight, Oxford Economics assistant economist Makoto Tsuchiya estimated that the Philippines grew at a slower pace of 5.8% in the period.

"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," Tsuchiya said.

The country's economic growth in the second quarter eased to 7.4% from the 8.2% recorded in the first three months, dampened by soaring commodity prices.

In the third quarter, Filipinos were still forced to tighten their belts amid rising inflation, especially in food and fuel products. This is notably harder for regular workers, with some only getting minimal wage hikes.

Last September, the Philippine Statistics Authority (PSA) reported that inflation further accelerated to 6.9%, its highest rate in four years.

Aside from inflation, the economy could also hit a snag following the government's pronouncement of mirroring the US Fed's aggressive stance to hike interest rates to tame surging prices, according to Rizal Commercial Banking Corporation chief economist Michael Ricafort.

"Higher interest rates/financing costs/borrowing costs... would also be a drag to further economic growth for 3Q 2022 and 4Q 2022, in terms of curbing demand for new loans/credit that spur more investments, which, in turn, generate more employment and other business/economic opportunities," Ricafort said.

The Bangko Sentral ng Pilipinas said last week the Philippines would match the US Fed's move raising interest rates by 75 basis points or three-quarters of a percentage point to soften the impact on the peso and control inflation.

READ: Marcos signals higher interest rates to fight rising prices

Mixed economic outlook

Some economists also said the Philippines might fall short of hitting the 6.5-7.5% target band for 2022.

"Despite starting strong at the beginning of the year, year-end economic growth could be between 5% to 6%," said Mitzie Irene Conchada, an economist from De La Salle University.

Chanco's forecast is also within Conchada's range, with the former projecting a "disappointing" 5.6% full-year economic growth.

Hitting the government's goal would be "very difficult," Chanco stressed.

"Simply put, the Filipino household isn't as strong as the some of the more optimistic headlines would have you believe, and this is a problem that predates this year's inflation spike and exchange rate collapse," he said.

However, for Sonia Zhu, an associate economist at Moody's Analytics, the Philippines is on course to meet its target given the government's decision to provide subsidies to cushion the impact of higher and food prices, including the easing of travel restrictions which bolstered the tourism industry.

Ser Percival K. Peña-Reyes, associate director at the Ateneo de Manila University Center for Economic Research and Development, echoed Zhu's optimism.

"We believe that the country is on track to meet the government growth target for the whole year. Perhaps, we could even exceed the target slightly (7.6% full-year real GDP growth)," he said.

The PSA will report on the economy's third quarter performance on Nov. 10.