Consumption in Philippines

Philippines - Consumption

GDP growth accelerates in the third quarter, defies inflation and rate hikes

GDP growth gained marginal momentum and reached 7.6% year on year in the third quarter, from 7.5% in the second quarter, according to a preliminary reading. Robust private spending outweighed weaker growth in government and fixed investment.

Domestically, household spending growth remained resilient in the quarter, despite easing to 8.0% yoy in Q3 from Q2’s 8.6%. Favorable labor market dynamics (unemployment rate Q3: 5.2%; Q2: 5.7%), pent-up savings and remittances shielded consumers from elevated prices and higher interest rates throughout the quarter. In addition, fixed investment growth largely maintained momentum despite tighter financial conditions and a weakening currency, coming in at 10.1% in Q3, from the 13.6% logged in the prior quarter. In contrast, public spending growth was the slowest since Q1 2021, falling sharply to 0.8% (Q2: +11.1% yoy).

The external sector continued to weigh on the overall reading, with imports growth still outpacing the expansion of exports. Goods and services exports growth hit an over one-year high of 13.1% in the third quarter, picking up from the second quarter's 4.4%. Meanwhile, imports of goods and services growth sped up to 17.3% in Q3 (Q2: +13.8% yoy), marking the best performance in one year. Consequently, the external sector detracted 2.8 percentage points from the overall reading, an improvement from the 4.0 percentage point detraction in Q2.

On a seasonally adjusted quarter-on-quarter basis, economic activity rebounded, increasing 2.9% in Q3, contrasting the previous period's 0.1% fall. Q3's reading marked the best result since Q4 2021.

On the outlook, ING’s senior economist Nicholas Mapa commented:

“[…] 2023 growth could be challenged should current headwinds persist. Meanwhile, the much lower savings rate reported by households suggests that although spending may remain robust in the near term, a sustained drawdown on savings could expose households to shocks at a time when borrowing costs have risen significantly.”

Our panelists project GDP to increase 5.5% in 2023, which is down 0.2 percentage points from last month’s estimate. For 2024, they forecast economic growth of 6.1%.