Philippines: Economic growth slows to an over three-year low in the third quarter
Economic growth decelerated in the third quarter, with annualized GDP growth expanding 6.1%, a notch down from the upwardly revised 6.2% expansion recorded in the second quarter (previously reported: +6.0% year-on-year). The print was the weakest showing since Q2 2015 and missed market expectations of a pick-up to 6.3%. The slowdown was primarily due to softer consumer spending and a drag on growth from the external sector. Nevertheless, the Philippines remains one of the fastest growing economies in the region this year.
The domestic economy broadly held up in Q3, despite weaker household spending as inflationary pressures corrode consumers’ purchasing power. Private consumption grew 5.2% in annual terms in Q3, easing form the 5.9% increase in Q2. Government consumption, on the other hand, accelerated markedly, propelled by the government’s massive infrastructure plan, surging 14.3% in Q3 (Q2: +11.9% yoy). Likewise, fixed investment was also buoyed by the infrastructure program and rose 16.5% in Q3, although it was down from the robust 21.2% print in Q2.
While the government’s infrastructure push has been a key driver of growth in the domestic economy, it is also largely responsible for the negative contribution to GDP growth from the external sector, given the massive demand for capital goods needed to sustain construction efforts. Imports expanded a whopping 18.9% in Q3, edging up from the 18.5% increase in Q2. Meanwhile, export growth was also solid, expanding 14.3% in Q3 (Q2: +12.6% yoy), but was unable to compete with the rush of imports.
Looking forward, economic growth should advance at a solid pace in the quarters ahead. Nevertheless, growing headwinds from near decade-high inflation, rising interest rates and pressures on the trade deficit from the import surge, could impede growth.