Capital Economics trims 2022 Philippines growth forecast  as Q2 disappoints

MANILA, Philippines — Think tank Capital Economics has trimmed its forecast for Philippine gross domestic product (GDP) growth this year following the slower-than-expected economic performance in the second quarter.

In a report, Capital Economics senior Asia economist Gareth Leather said given the “weaker-than-expected outturn, we are cutting our forecast for this year from eight percent to 6.5 percent.”

This forecast lands at the lower end of the government’s 6.5 to 7.5 percent growth target for the year.

For next year, Capital Economics maintained its six percent GDP growth forecast, which is below the government’s goal of 6.5 to eight percent.

The Philippine Statistics Authority reported last Tuesday that the domestic economy grew by 7.4 percent in the second quarter, slower than the 8.2 percent expansion in the first quarter, and the 12.1 percent growth in the second quarter last year.

For the first semester, the country’s GDP growth stood at 7.8 percent.

Socioeconomic Planning Secretary Arsenio Balisacan said elevated prices of fuel and food have contributed to the slowdown.

“Economic growth in the Philippines unexpectedly slowed in Q2 (second quarter) and we expect growth to remain subdued in the second half of 2022 as high commodity prices, rising interest rates, and weaker global demand drag on the economy,” Leather said.

Private consumption in the country slowed to 8.6 percent in the second quarter from 10.1 percent in the first quarter due to the impact of rising inflation and higher interest rates on the purchasing power of consumers.

“We expect consumer-facing sectors to struggle over the coming months as these factors continue to drag on spending,” Leather said.

He said the think tank also sees the trend of slower export growth of 4.3 percent in the second quarter from the 10.4 percent uptick in the first quarter to continue in the coming quarters as global growth eases given increasing interest rates and higher inflation.

“A shift in global consumption patterns from goods back to services will also weigh on the sector,” he said.

In addition, he said investment is seen to remain weak as rising interest rates and high commodity prices hold back prospects.

Given the second quarter economic performance, he said the think tank believes this “will be enough to tip the central bank to slow the pace of its tightening and have penciled in an increase of  25 basis points (bps).”

The next monetary policy meeting is on Aug. 18.

So far, the central bank has raised interest rates by 125 bps, including the 75 bps hike during the off-cycle meeting last July.