Economic growth edges up in Q1, but fails to meet expectations

According to a preliminary estimate, annual GDP growth gathered pace to 5.7% in the first quarter, up from 5.5% in the fourth quarter of last year but falling short of market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth moderated to 1.3% in Q1, compared to the previous quarter's 1.8% expansion.

The acceleration stemmed from rebounds in public spending and net exports of goods and services. Government consumption bounced back, growing 1.7% in Q1 (Q4 2023: -1.0% yoy). Less positively, other subcomponents of domestic demand felt the pinch of inflationary pressures and elevated interest rates, marking the weakest expansions since Q1 2021: Private consumption growth fell to 4.6% in Q1 (Q4 2023: +5.3% yoy), and fixed investment growth fell to 2.3% in Q1 (Q4 2023: +10.2% yoy). On the external front, exports of goods and services rebounded, growing 7.5% year on year in the first quarter, largely thanks to a recovery in the global electronics sector (Q4 2023: -2.5% yoy). Meanwhile, imports of goods and services growth accelerated moderately to 2.3% in Q1 (Q4 2023: +2.0% yoy).

Annual GDP growth is set to accelerate in Q2, but will then likely cool in the second half of 2024. With inflation set to average above its January–March level and the Bangko Sentral Pilipinas (BSP) on track to lower interest rates only toward year-end, household spending and investment will remain under pressure. Our panelists expect public consumption to drive momentum in the remainder of the year, as the government raised the fiscal deficit ceiling in April. Meanwhile, the global tech sector upturn should support export growth.

United Overseas Bank analysts Julia Goh and Loke Siew Ting commented on their forecast revision: “We downgrade our [2024] Philippines’ growth forecast […] after taking into account the 1Q24 GDP outturn, the persistence of extreme weather conditions in the country and an expected delay in BSP rate cuts. [...] The persistence of high inflationary pressures and restrictive monetary policy settings will further weigh on household consumption and investment over the next few quarters. Nevertheless, a continued recovery in external sector and government spending will be the key impetuses to the domestic growth prospects in the near term.” Nomura analysts Euben Paracuelles and Nabila Amani said: "We maintain our 2024 GDP growth forecast of 6.0% y-o-y, up from 5.5% in 2023, with public investment spending still likely the main growth engine. […] We believe the government continues to push for more progress in public infrastructure projects, supporting our forecast for higher average GDP growth of 6.2% over the rest of the year, although the trajectory could be relatively bumpy.”

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