PH GDP growth seen to further slow in Q2

MANILA, Philippines — The Philippine economy will likely perform worse in the second quarter, with growth possibly slowing to as low as 1.5 percent from the first quarter’s 2.8 percent as the oil shock exacerbates already weak consumption and investment, the Congressional Policy and Budget Research Department (CPBRD) said.

In its latest discussion paper, the CPBRD said it initially estimates second-quarter gross domestic product (GDP) growth to settle between 2.5 percent and 3 percent.

However, the think tank warned that these estimates may still be optimistic and fail to fully capture the impact of the ongoing energy crisis triggered by the war.

“The latest available data points do not reflect the full extent of the energy crisis. A full quarter of severely elevated fuel, fertilizer, and other key commodity prices could be expected to exert an even larger effect on growth. As such, a more conservative forecast range would settle from 1.5% to 2.5%,” the CPBRD said.

If realized, this would mark a further slowdown from the 2.8-percent growth recorded in the first quarter, when the Middle East war affected only one month of economic activity.

According to the CPBRD, the crisis is expected to deepen the ongoing deceleration in demand and investment. This means that the economy had already been slowing even before the oil shock.

“Household consumption, which was on the decline prior to the onset of the latest Middle East conflict, is poised to further decline. Similarly, anemic investment growth is expected to persist, or worsen, with growing economic uncertainty and rising costs of borrowing,” it said.

Major sectors of the economy are also expected to remain weak, with the services sector likely sustaining its slowdown while the industrial sector may again fail to contribute to economic expansion. Meanwhile, the agricultural sector may continue to contract slightly.

“Rising prices, both in goods and loanable funds, will only serve to exacerbate the already anemic consumption and investment,” the CPBRD added.

Given these conditions, the think tank said there was a need to reassess economic assumptions and recalibrate fiscal strategies, especially as it is now “highly unlikely that the Philippines will reach 4% growth, let alone 5% growth in 2026.”

The CPBRD also floated an alternative strategy, arguing that the government may need to reduce spending and instead turn to the private sector.

“Policymakers are enjoined to consider reducing government spending and affording the private sector with more freedoms. After all, heavy and sustained deficit spending has proven to be ineffective at fostering desired levels of economic growth,” the CPBRD said.

“To wit, neither consumption nor investment have kept pace with government spending,” it added.

Among the proposals raised by the think tank were a significant reduction in the 12-percent value-added tax (VAT) rate to help make businesses more economically viable amid the crisis, as well as tax breaks for income earners to support household purchasing power.

“Should the government elect to reduce its spending, reduce its taxes and fees on productive industries, and relent on its present level of borrowing, it could encourage household consumption, bolster job generation, and foster a friendlier climate for investment and entrepreneurship,” the CPBRD said. /atm