Economists hike growth forecasts

As GDP expands faster in Q3

MANILA, Philippines — After a stronger-than-expected expansion in gross domestic product (GDP) in the third quarter, analysts  are now painting a rosier picture of the Philippine economy this year.

GDP grew by a surprising 5.9 percent pace in the July to September period, halting a slowdown in the three previous quarters. Prior to the recovery in the third quarter, GDP growth slowed for three straight quarters to 7.6 percent in the fourth quarter last year, 6.4 percent in the first quarter this year and 4.3 percent in the second quarter.

Thus, the Philippine economy managed to expand by 5.5 percent from January to September, still lower than the six to seven percent target penned by economic managers through the Development Budget Coordination Committee (DBCC).

With this development, global banking giant Citi raised its 2023 GDP growth forecast for the Philippines to 5.5 percent from its original target of 5.2 percent, while BMI Country Risk & Industry Research – the research arm of the Fitch Group – hiked its growth forecast to 5.7 percent from the earlier assumption of 5.3 percent.

UK-based think tank Pantheon Macroeconomics has also upgraded its forecast for the Philippines following the strong growth outturn in the third quarter.

“We have raised our full-year growth forecast for 2023 to 5.4 percent from 4.5 percent previously,” Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco and senior Asia economist Moorthy Krshnan said in a report released yesterday.

While the Philippine economy expanded at a faster pace in the third quarter, the Pantheon economists are of the view that the slowdown in growth is far from over.

“Our revised outlook sees a moderation in the fourth quarter to five percent, and a still-softer annual outturn of 4.8 percent for 2024,” Chanco and Krshnan said.

While the third quarter growth was supported by the recovery in government spending, which grew by 6.7 percent from the previous quarter’s 7.1 percent contraction, Pantheon economists said the bounce in public spending was unsustainable.

“The consolidation of the pandemic-era budget blowout is nowhere near done and now appears to be struggling just to remain on schedule,” they said.

They said that as the rolling annual budget deficit widened to 6.7 percent of GDP in the third quarter from 6.4 percent in the second quarter, there is huge doubt the government would achieve the 6.1 percent of GDP target for the year.

“We now expect the deficit to narrow to 6.5 percent of GDP this year, before improving further to six percent in 2024, up from six percent and 5.5 percent, previously,” the economists said.

The think tank also continues to have a downbeat outlook on consumption, a key driver of economic growth, due to the huge damage to households savings caused by the pandemic and the cost-of-living crisis.

Growth in household consumption slowed to five percent in the third quarter from the previous quarter’s 5.5 percent.

HSBC economist for ASEAN Aris Dacanay likewise said growth would likely be subdued for the rest of the year and even up to the second half of next year as the drags in both private consumption and investment become more substantial as government spending already caught up.

“We expect consumption to ease further for the rest of 2023 as high inflation erodes the purchasing power of household budgets, all while households readjust their spending to build their savings back up,” Dacanay said.

Meanwhile, Japan’s Nomura is maintaining its growth projection at 5.2 percent in 2023.

“Our forecast pencils in slower momentum to return in the fourth quarter, as we think private consumption growth will continue to soften due to weakening household sentiment, as was evident in (Thusday’s) data. Private investment spending, including durable equipment, has been more lackluster, which we believe will be increasingly constrained by a high interest rate environment that will likely persist,” Nomura chief ASEAN economist Euben Paracuelles said.

He said the modest improvement next year reflects Nomura’s views that the government’s implementation of infrastructure projects would gain momentum and that external demand, including for electronics exports, would improve somewhat.

But for the government’s economic team, growth would likely settle at the lower end of the six to seven target by yearend.

Economic team head and Finance Secretary Benjamin Diokno said full-year GDP would likely be close to the low-end of the DBCC’s target.

“This as inflation eases, labor market conditions remain strong, and consumer spending increases, particularly during the holiday season,” he said.

Diokno maintained that growth in the last quarter would be supported by the continued acceleration of government spending and the rebound in manufacturing activities.

The finance chief is also banking on the continued deceleration of inflation to help domestic demand propel the economy.

Latest data showed that inflation dropped to 4.9 percent in October from 6.1 percent in September.

“The government continues to monitor developments in food and non-food inflation that need to be addressed and is implementing a package of comprehensive measures to effectively mitigate inflation across several fronts,” Diokno said. — Maureen Simeon and Louella Desiderio