Inflation dampens Q2 2022 economic growth at 7.4%

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Metro Manila (CNN Philippines, August 9) — Economic growth from April to July eased to 7.4% after a stronger-than-expected performance in the first quarter, Philippine Statistics Authority (PSA) figures released Tuesday show.

The economy's second-quarter performance trailed the revised 8.2% expansion in the first three months of the year — having contracted 0.1% quarter-on-quarter on a seasonally adjusted basis — and 12.1% growth recorded in the second quarter of 2021.

The latest figure is below the 8.15% average yielded by a CNN Philippines poll of 14 economists. While analysts cited stronger consumer and election-related expenditure during the period, they warned that surging commodity prices could dampen consumption.

"The global headwinds particularly inflation, particularly those coming from fuel and food, contributed to that noticeable slowdown," Socioecnomic Secretary and National Economic and Development Authority (NEDA) chief Arsenio Balisacan said in a briefing.

Services, which accounted for the biggest share in second quarter GDP, expanded the strongest among major industries at 9.1% from a year ago but shrank 0.4% from the quarter prior.

"The decline in the services sector can be accounted from the decline also in the household final consumption expenditure," explained PSA chief Dennis Mapa, reporting a 2.7% drop in household spending from the first three months of the year.

Household spending grew 8.6% in the second quarter from the same period a year ago — lower than the double-digit growths posted by imports, construction, exports, and durable equipment expenditure.

The industrial sector grew 6.3% annually and 0.2% quarter-on-quarter while agriculture, forestry, and fishing expanded 0.2% year-on-year and 0.9% compared to the first quarter.

Early into the briefing, Balisacan noted the weak performance of agriculture amid vulnerability to natural calamities and rising input costs. He also cited the deceleration in manufacturing brought about by inflationary pressures stemming from the Ukraine-Russia war, weakening global demand, and supply chain disruptions trigged by China's strict pandemic rules.

The Bangko Sentral ng Pilipinas has been hiking interest rates since May to crack down on stubborn inflation, giving assurance the economy is strong enough to weather any adverse impacts from policy tightening.

"Obviously, there are short-term costs to that in terms of the cost of working capital as well as the possible downward effects of that on consumption. But we should look at these policy changes in that perspective, that there are broader and longer-term considerations. I'd like to believe that the policy change should have net positive effects on the economy," Balisacan said.

The recent figure brings average growth for 2022 so far to 7.8%, above the 6.5-7.5% target band set by President Ferdinand "Bongbong" Marcos Jr.'s economic team for the year.

Balisacan acknowledged the economy could expand slower in the latter half of 2022 amid the threat of inflation, but said full-year growth is likely to still be within target.

"In order to achieve the lower bound of the growth forecast of 6.5 percent, the Philippine economy has to grow by only 5.2 percent in the second half of the year. To achieve the upper bound of 7.5 percent, the economy has to grow by 7.6 percent," said Finance Sec. Benjamin Diokno in a separate statement.

Diokno also attributed the economy's expansion during the quarter to better mobility and labor conditions, along with the government's support to growth.

Economic managers vowed to continue the government's infrastructure program, maintain macroeconomic stability, and take advantage of recently signed laws amending the Public Service Act, Foreign Investments Act, and the Retail Trade Liberalization Act to attract more investments and foster growth.