Soaring inflation cools PH Q2 GDP growth to 7.4%

Accelerating inflation has cooled the Philippines’ second-quarter economic growth to 7.4 percent, below market expectations, the government reported on Tuesday.

Gross domestic product (GDP) expansion during the April-to-June period was lower than 8.2 percent a quarter ago and 12.1 percent a year ago, National Statistician Dennis Mapa said in a press briefing. The majority of economists watching the Philippines had projected a sustained above 8-percent growth for the second quarter.

Also, Mapa said second-quarter GDP or the total goods and services produced in the country was smaller than the first-quarter output by 0.1 percent.

“Transportation and storage, manufacturing, human health and social work activities were the top contributors to the [quarter-on-quarter] decline,” the Philippine Statistics Authority (PSA) said in a statement.

Socioeconomic Planning Secretary Arsenio Balisacan nonetheless noted that the Philippines was the second-fastest growing economy in emerging Asia, only next to Vietnam’s 7.7-percent growth during the second quarter.

In the first half, the Philippines’ economic growth averaged 7.8 percent, above the downscaled full-year goal of 6.5-7.5 percent.

As World Bank data on Monday showed that Vietnam’s economy grew by an average of 6.4 percent from January to June, the Inquirer asked Balisacan, who heads the state planning agency National Economic and Development Authority (Neda), if the Philippines was possibly the fastest-growing emerging Asian economy during the first six months.

The Neda chief replied in a text message: “We don’t have the data for other emerging economies yet. But it’s safe to say that we’re among the fastest-growing emerging economies in the first half.”

However, Balisacan already conceded that lingering elevated consumer prices expected up to this year’s end would further slow GDP expansion during the second half.

The economy needs to grow by at least 5.3 percent in the second half to achieve the lower end of this year’s growth target, while 7.2-percent expansion from July to December would allow hitting the upper end, Balisacan said.

With economic reopening in full swing despite the prolonged COVID-19 pandemic, it was the high prices of goods and services that tempered second-quarter growth — consumer spending and the services sector slightly shrank compared to first-quarter levels. Consumption and services accounted for as much as 70 percent and 60 percent, respectively, of the Philippine economy, Balisacan noted.

Mapa said second-quarter household final consumption expenditures slid by 2.7 percent quarter-on-quarter due to a drop in spending on transport, restaurants and hotels, as well as food and non-alcoholic beverages.

Services also declined by 0.4 percent quarter-on-quarter due to lower economic contributions from the sectors of transportation and storage, human health and social work activities, as well as real estate and ownership of dwellings, the PSA chief said.

Balisacan noted that many of these sectors, like transport, were the most badly hit by expensive global oil prices, which spilled over locally.

From April to June, headline inflation averaged 5.5 percent, above the 2-4 percent rate of increase in prices of basic commodities which the Bangko Sentral ng Pilipinas (BSP) deemed as manageable and conducive to economic growth. If high inflation had not been a dampener, the Philippines would have had a “better” second-quarter growth rate, Balisacan said.

Referring to Russia’s invasion of Ukraine, a slowing Chinese economy, and aggressive interest rate hikes globally led by the United States Federal Reserve amid high inflation and a recession in the US, Balisacan lamented that it was mostly global headwinds that contributed to the Philippine economy’s “noticeable slowdown” during the second quarter.

While optimistic that this year’s GDP growth target was achievable, Balisacan said the combo of the Bangko Sentral ng Pilipinas’ (BSP) monetary policy response by hiking interest rates, addressing supply constraints mainly through food importation, as well as providing cash dole outs to the most vulnerable sectors, would rein-in and provide relief amid elevated inflation. It would also help that global energy prices were already on the decline, the Neda chief said.

Balisacan said even the protracted fight against COVID-19 was more manageable than inflation, with mass vaccination and booster shots allowing more productive sectors to reopen under minimum health standards.