Think tank sees slower 5.8% GDP growth in Q3

MANILA, Philippines — London-based Capital Economics expects Philippine economic growth to have slowed down to 5.8 percent in the third quarter as rising inflation likely eroded the spending power of consumers.

In a report issued over the weekend, the economic research firm said the successive policy hikes implemented by the Bangko Sentral ng Pilipinas in response to rising inflation would continue to weigh on growth in the coming months.

“A key drag is likely to have been higher inflation, which will have weighed on consumer’s purchasing power,” said the report.

“Monetary policy is another factor that is likely to have weighed on demand. In response to rising inflation, the central bank (BSP) has raised rates by 150 basis points. With inflation likely to remain above the BSP’s target for some time yet, further rate hikes are likely,” it added.

Headline inflation accelerated to 6.7 percent in September from 6.4 percent the previous month mainly because of supply shocks amid strong domestic demand.

The Philippine Statistics Authority (PSA) is expected to announce the October inflation growth rate on Nov. 6 and the third quarter economic performance on Nov. 8.

Capital Economics’ growth forecast for the third quarter is lower than the market consensus of 6.4 percent and the six percent actual growth registered in the second quarter.

The Development Budget Coordination Committee (DBCC) has adjusted this year’s GDP growth target range  from seven to eight percent to 6.5 to 6.9 percent.

“Higher inflation and tighter monetary policy will continue to weigh on growth over the coming quarters, and we don’t expect a strong rebound in the economy. That said, we don’t expect growth to collapse either,” the report said.

“A key support is likely to come from the government’s infrastructure program. Infrastructure spending is scheduled to increase to the equivalent of just below six percent of GDP next year, up from five percent this year,” it added.