GDP growth accelerates sharply in Q3

According to a preliminary estimate, GDP growth sped up markedly to 5.9% year on year in the third quarter, from 4.3% in Q2. Q3's reading marked the strongest increase since Q4 2021 and beat market expectations by a significant margin. On a seasonally adjusted quarter-on-quarter basis, economic growth rebounded, expanding 3.3% in Q3, following the previous quarter's 0.7% drop.

Recovering public spending and stronger investment growth drove the acceleration. Government consumption bounced back, growing 6.7% in Q3, as the authorities compensated for underspending in the first half of the year (Q2: -7.1% yoy). Moreover, fixed investment growth improved to 7.9% in Q3 from 4.0% in the prior quarter, supported by public infrastructure projects. Less positively, household spending growth fell to 5.0% in Q3, marking the weakest expansion since Q1 2021 (Q2: +5.5% yoy). On the external front, exports of goods and services increased 2.6% on an annual basis in the third quarter, which was below the second quarter's 4.4% expansion. In addition, imports of goods and services deteriorated in line with moderating private spending, contracting 1.3% in Q3 (Q2: +0.2% yoy).

The economy is set to slow from Q3’s acceleration in Q4 before picking up speed again in 2024. Lackluster household spending will cap the expansion in Q4 2023, but robust public expenditure should limit the slowdown. Our panel sees domestic demand picking up next year, with government spending growth in particular set to accelerate nearly fivefold from this year’s forecast. Moreover, the external sector should regain speed in 2024, as foreign demand strengthens and the downturn in the global electronics sector eases. Tighter-for-longer global monetary conditions, a stronger-than-expected El Niño weather event and unexpectedly sluggish growth in China pose downside risks.

Euben Paracuelles, analyst at Nomura, commented on the outlook for the current quarter and next year: “We maintain our GDP growth forecasts of 5.2% in 2023 and 5.8% in 2024, below the government’s range of 6-7%. Our forecast pencils in slower momentum to return in Q4 2023, as we think private consumption growth will continue to soften due to weakening household sentiment, as was evident in today’s data […]. The modest improvement we expect next year reflects our views that the government’s implementation of infrastructure projects will gain momentum and that external demand, including for electronics exports, will improve somewhat.” ANZ economists Debalika Sakrar and Sanjay Mathur commented on the potential impact of Q3’s growth figure on monetary policy: “Irrespective of the drivers, [Q3’s] GDP headline print could be partly reassuring for the Bangko Sentral ng Pilipinas, as it is keeping its door open to policy rate hikes if inflationary concerns re-emerge in coming months. We, however, do not expect any change in the policy rate in the 16 November meeting.”

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