GDP growth in Q4 surprises on the upside, moderates nonetheless
According to a preliminary reading, GDP growth surprised markets to the upside in the fourth quarter, increasing 7.2% annually. That said, it moderated from Q3’s 7.6% year on year. This brought 2022’s full-year growth to an over 40-year high of 7.6%, surpassing the government’s forecast range of 6.5–7.5%.
The fourth quarter’s moderation came on the back of ebbing domestic demand. Household spending increased 7.0% in the fourth quarter, which was below the third quarter’s 8.0% expansion. The effects of looser Covid-19 curbs seemingly faded, while stronger price pressures eroded non-discretionary spending. The return to in-person schooling boosted education spending, preventing a deeper growth moderation, though this effect should be one-off. Moreover, fixed investment growth fell to 6.3% in Q4 (Q3: +9.9% yoy) on weakening business confidence, likely offsetting the effects of government-led infrastructure projects. More positively, government spending improved to a 3.3% expansion in Q4 (Q3: +0.8% yoy).
On the external front, exports of goods and services growth defied concerns over slowing global demand and hit an over one-year high of 14.6% in the final quarter, picking up from the third quarter’s 13.4%. Conversely, imports of goods and services growth slowed to 5.9% in Q4 (Q3: +17.8% yoy), indicating a sharp downturn in domestic demand.
Moreover, underlying momentum remained robust but showed signs of slowing: On a seasonally adjusted quarter-on-quarter basis, economic growth cooled to 2.4% in Q4 from the previous period’s 3.3% expansion.
On the outlook, Euben Paracuelles and Rangga Cipta, research analysts at Nomura, commented:
“Taking into account today’s better-than-expected outturn, we raise our 2023 GDP growth forecast to 4.9% from 4.3%. […] Our more cautious forecast relative to the government’s 6.0–7.0% target reflects our house view of sharply slower growth in the Philippines’ key trading partners and the tech downturn. In addition, we continue to believe pent-up spending from the reopening has largely played out, which was evident in the Q4 data.”
Debalika Sarkar and Sanjay Mathur, economists at ANZ, added:
“The better-than-anticipated outturn in Q4 2022 notwithstanding, there are some signs that growth has topped out and a slower trajectory will emerge. We expect slower global growth, tighter monetary policy and a more conservative fiscal stance to cumulatively weigh on growth this year. The flipside of weaker growth combined with lower commodity prices is a milder trade deficit and a stronger peso.”
Philippines GDP (PHP bn) Data
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