Philippine economic growth expected to ease in 2024 — think tank

MANILA, Philippines — Despite robust third-quarter economic growth, a think tank predicted a "moderate" outlook for the Philippine economy in 2024.

In a report released on Wednesday, ING Manila branch chief economist Nicholas Mapa linked the potential economic shifts to potential strains in household spending, fiscal spending nearing its limits, and the expected persistence of the Bangko Sentral ng Pilipinas' ongoing tightening cycle. This aligns with forecasts of an imminent global trade slowdown.

“Despite the impressive growth report, we believe that growth may not be as robust as projected and that the pace of GDP growth could moderate next year,” Mapa said in a report. 

While the sustainability of the observed third-quarter surge in government spending remains uncertain, Mapa lauded the increase in spending during the period and the growth seen in net exports.

“One of the main drivers of the 3Q GDP upside surprise was the strong performance of government spending. After contracting in the previous quarter, fiscal authorities vowed to accelerate outlays to support sagging growth,” Mapa said in the report. 

However, skepticism lingers according to Mapa about the sustainability of government spending as a reliable source of growth in the upcoming quarters.

The main concern, as Mapa said, revolves around the limited capacity of fiscal authorities to increase spending due to the high levels of debt.

“However, we remain skeptical that it will be a reliable source of growth to power momentum in the coming quarters. The main reason for this is the limited space for fiscal authorities to increase spending due to elevated debt levels,” Mapa said in his report.

Government underspending was cited as a factor contributing to the second-quarter economic slowdown, which recorded a 4.3% gross domestic product (GDP) growth.

In response, the government accelerated its spending, resulting in a third-quarter increase to 6.7%, thereby aiding the expansion of the GDP.

The report highlighted the sluggish growth in household spending since 2011, factoring out the influence of COVID-19.

During the period, spending on essential food items notably grew by a marginal 0.3% year-on-year. Purchases of clothing and footwear items experienced a substantial decline, plummeting to -11.4% year-on-year, as detailed in the report.

Mapa observed a robust pent-up demand following the economy's reopening, leading to significant spending increases of 14.5% in transport, 14.9% in restaurants and accommodation, and 15.4% in recreational activities.

Despite the expected softer demand-led price pressures, Mapa said that the BSP would maintain a "hawkish" stance.

“Although we believe BSP’s inflation forecast to be too aggressive, we agree that inflation will remain elevated in the coming months. We forecast inflation to average 4.1% Year-on-Year next year with much of the price pressures driven by supply-side factors such as drought (El Niño), imported energy price adjustments, and a shortage of fish,” he said.

“However, we believe that demand-side pressures will be relatively muted given our outlook for consumption to moderate and that the government will be unable to ramp up spending in a manner that could be inflationary,” he added.

During a press briefing on Wednesday, National Economic and Development Authority Secretary Arsenio Balisacan reiterated the government's commitment to medium-term growth targets of 6.5% to 8%.

The third quarter recorded a GDP of 5.9%, surpassing the 4.3% in the second quarter, contributing to a year-to-date economic growth of 5.5%. To meet the government's target of six to seven percent, the economy needs to expand by at least 7.2% in the fourth quarter.