Economic growth likely slowed in the third quarter

Laurent Agcaoili – The Star of the Philippines

November 7, 2022 | 00:00

MANILA, Philippines — The country’s gross domestic product (GDP) growth likely slowed in the third quarter after slowing to 7.4% in the second quarter from 8.2% in the first quarter, as inflation continues to bite, according to economists.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said GDP expansion likely slowed to 5.7% from July to September.

While the bank’s forecast continues to support the optimistic momentum generated by the reopening of the economy and improved mobility since the start of the year, Asuncion said the anticipated sharp deceleration in GDP in the third quarter could be attributed to the erosion of general purchasing power due to soaring inflation. in the last trimester.

Asuncion also cited the limited budgetary contribution to growth as well as the damage caused by Typhoon Karding.

The economist at the bank headed by Aboitiz said financial market signals from the depreciation of the peso and the lackluster Philippine Stock Exchange Index (PSEi) were hardly uplifting.

According to Asuncion, the risk narratives include rate hike expectations from hawkish central banks, including that of the Bangko Sentral ng Pilipinas (BSP), as policy rates chase higher rates and inflation paths, as well as the purchasing power of companies and industries with a national vocation. weakened by the high inflation outlook in the fourth quarter.

Asuncion also said the dollar is likely to remain strong due to the hawkish US Federal Reserve, driven by recession risks in the US or globally, and amplified by the recent downgrade by the International Monetary Fund (IMF ) global economic forecast for 2023 and continued weakness in China-centric regional trade.

Asuncion said other factors include limited fiscal stimulus in the Philippines due to tight fiscal space to spend, a weaker oil price outlook, as well as other fallout from ongoing geopolitical risks and COVID challenges. .

Rizal Commercial Banking Corp. chief economist Michael Ricafort said GDP expansion likely slowed to 6% in the third quarter.

Ricafort said the moves to further reopen the economy were basically the biggest boost to the economy, given the relatively weak base from a year ago.

He said any further growth came from the continued recovery of local and overseas tourism, the resumption of face-to-face classes, continued growth in foreign direct investment, remittances from overseas Filipino workers. , revenue from business process outsourcing and exports, among others. .

However, Ricafort said risk factors, such as rising consumer prices, will continue to eat away at GDP growth in the third and fourth quarters, as they did in the second quarter.

According to Ricafort, the seasonal increase in commercial/economic activities in the fourth quarter, taking into account the Christmas and New Year holidays, would lead to increased spending by consumers, businesses, government and other institutions.

The Yuchengco-led bank sees the country’s GDP growth accelerating to a range of 6.5-7% this year.

China Bank’s chief economist, Domini Velasquez, said July-September GDP expansion likely slowed to 6.2% as the bleaker outlook and high inflation rate environment have probably weighed on economic activities.

In terms of the sector, Velasquez said services likely saw robust growth, albeit at a slower pace than in the second quarter due to post-pandemic normalization rebalancing and rising inflation.

“On a positive note, tourist arrivals improved in the third quarter, contributing to the consumption of services such as air transport, accommodation, etc.,” Velasquez said.

“Going forward, we expect growth to slow further in the coming quarters and GDP growth next year to be below the government’s target of 6.5-8%. A global slowdown, aggressive monetary tightening and reduced government spending will temper growth in 2023,” she said.

Khoon Goh, head of Asia research at ANZ, said Philippine GDP growth likely rose 6.6% in the third quarter, driven by another quarter of healthy domestic demand.

Goh said the improving labor market, strong inflow of remittances in real terms as well as solid demand for household credit in the third quarter supported private consumption growth.

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