Philippines Private Consumption (ann. var. %)

Private Consumption in Philippines

GDP growth records slowest increase in two years in Q1

Economic activity softened in the first quarter, with GDP expanding 6.4% year on year (Q4 2022: +7.1 yoy). Q1’s reading marked the slowest growth since Q1 2021. A plunge in exports growth and a slowing expansion in private spending drove the moderation.

On the domestic front, private consumption growth moderated to 6.3% yoy in Q1 from a 7.0% expansion in Q4. Above-target inflation eroded households’ purchasing power, with non-discretionary spending on food and beverages rising only marginally in the quarter. In contrast, growth in government consumption accelerated to 6.2% in Q1 (Q4 2022: +3.3% yoy). Fixed investment growth also accelerated in Q1, to 10.4%, from 6.0% in the previous quarter, thanks to stronger activity in the construction sector.

Meanwhile, exports of goods and services delivered a blow to the Q1 reading: Growth fell to 0.4% in the quarter, marking the worst result since Q1 2021, amid a global economic slowdown and the tech sector downturn (Q4 2022: +14.6% yoy). In addition, imports of goods and services growth moderated to 4.2% in Q1 (Q4 2022: +7.0% yoy), marking the worst reading since Q1 2021. Consequently, net exports deducted 1.6 percentage points from overall GDP growth.

On a seasonally adjusted quarter-on-quarter basis, economic growth lost steam, cooling to 1.1% in Q1, from the previous quarter’s 2.4%. Q1’s reading was the lowest since Q2 2022.

On the outlook, Euben Paracuelles and Rangga Cipta, research analysts at Nomura, commented:

“We believe moderating household spending growth will continue due to still-elevated inflation, which is reducing households’ purchasing power. The implementation of public infrastructure spending is likely to improve, owing to the government’s prioritization of the ‘build back more’ program, but private investment growth should still face headwinds from sharply higher interest rates.”

Analysts at the EIU added:

“The question is now whether the first quarter of 2023 represents the full extent of the slowdown in the economy or if there is further weakness to come. Given the lag with which monetary policy tends to operate and a series of further challenges coming over the horizon (such as a likely El Niño season that will reduce food production), we believe it likely that growth will moderate further in the second quarter and will remain subdued in the third.”