High consumer prices seen to gnaw on Q3 growth

Amid lingering high inflation, Barcelona-based think tank FocusEconomics expects the Philippines’ third quarter growth to hit the slowest pace since the end of the pandemic-induced recession.

“Our panelists project GDP (gross domestic product) growth in the third quarter to decelerate to the slowest rate since the first quarter of 2021. Increased consumer prices will dent private spending, while higher interest rates will curb investment,” FocusEconomics junior economist Magdalena Preshlenova said in a report.

FocusEconomics did not give an estimate for third quarter GDP growth. However, it cut its full-year 2022 GDP growth forecast for the Philippines to 6.7 percent from 6.9 percent previously. The updated growth estimate remained within the government’s downscaled 6.5-7.5 percent goal.

The Philippines has been growing its GDP year-on-year since the second quarter of last year, reversing five straight quarters of economic contraction at the height of the most stringent COVID-19 lockdowns two years ago.

The 12.1-percent GDP growth posted in the second quarter of 2021 benefited from the low base in 2020. It was followed by growth rates of 7 percent in the third quarter and 7.8 percent in the fourth quarter of last year amid gradual economic reopening.

The economy grew by a better-than-expected 8.2 percent in the first quarter of this year, followed by a slower 7.4-percent expansion in the second quarter as elevated global commodity prices amid the prolonged Ukraine-Russia war spilled over locally.

To arrest inflation which averaged 4.7 percent in the first seven months or above the 2-4 percent target band of price hikes deemed manageable and conducive to economic growth, the Bangko Sentral ng Pilipinas (BSP) already hiked the policy rate by a total of 175 basis points so far this year to 3.75 percent. Higher interest rates on bank loans could temper borrowings and investments of both households and businesses.

The BSP said inflation had yet to peak and would likely ease only after the fourth quarter of this year. The consensus forecast of FocusEconomics’ panelists was an average of 4.9 percent in 2022.

“High energy and commodity prices, disrupted supply chains and recovering economic activity will fuel inflation this year” in the Philippines and across Association of Southeast Asian Nations, FocusEconomics said.

On the flip side, FocusEconomics expects “renewed post-election public spending” to keep the economy growing for the rest of this year. INQ