Growth sharply slows to 5.2% in Q3

By Aubrey Rose A. Inosante, Reporter

THE PHILIPPINE economy expanded by a weaker-than-expected 5.2% in the third quarter, as bad weather hurt agricultural output and government spending, the statistics agency said on Thursday.

Preliminary data released by the Philippine Statistics Authority (PSA) showed Philippine gross domestic product (GDP) grew by an annual 5.2% in the July-to-September period, slowing from the revised 6.4% growth in the second quarter and 6% a year ago.

This was also the weakest growth in five quarters or since the 4.3% expansion in the second quarter of 2023.

It was also below the 5.7% median forecast in a BusinessWorld poll of 12 economists and analysts.

On a seasonally adjusted quarter-on-quarter basis, GDP expanded by 1.7%, compared to 0.7%.

Despite the slower growth, Mr. Balisacan said the Philippines’ third-quarter GDP print was still the second-fastest in the region after Vietnam (7.4%).

“Our economy continues to grow steadily; the latest GDP figures indicate continuous expansion,” National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said at a briefing on Thursday.

Philippine GDP growth in the July-to-September period was better than Indonesia (4.9%), China (4.6%), and Singapore (4.1%).

For the first nine months of the year, Philippine GDP growth averaged 5.8%, slower than the 6% print a year ago. This was slightly below the government goal of 6-7% growth this year.

“The economy needs to grow by at least 6.5% to meet the government’s target for the last quarter 2024. We remain optimistic that this growth target is attainable,” Mr. Balisacan said.

He attributed the weaker-than-expected third-quarter growth to the impact of a series of typhoons on the agriculture sector.

Agriculture, forestry and fishing shrank by 2.8% in the third quarter, a reversal of the 0.9% growth posted a year ago. The sector accounts for around a tenth of Philippine economic output.

“The crops subsector of the agriculture sector posted a year-on-year decline of 2.8%, reflecting the impacts of the El Niño phenomenon during the planting season and the effects of seven typhoons, in addition to the Habagat (monsoon), during the harvest season,” Mr. Balisacan said.

He noted the combined agricultural damage and losses from the six typhoons in the third quarter and the recent Severe Tropical Storm Kristine has reached P15.8 billion.

At the same time, the industry sector grew by 5% in the third quarter, slowing from 5.6% a year ago due to base effects. Construction growth slowed to 9% from 14.5% a year ago.

Services expanded by 6.3% in the July-to-September period, easing from 6.8% in the same period in 2023.

“The successive typhoons suspended classes and work in government and some private offices, resulting in administrative delays and supply-chain disruptions,” Mr. Balisacan said.

CONSUMPTION RISES
Meanwhile, household consumption, which accounts for over 70% of the economy, jumped by 5.1% year on year in the July-to-September period, improving from 4.7% in the second quarter but steady from a year ago.

“Household spending is particularly a bright spot, growing by 5.1%, faster than the last two quarters due to slower inflation. The recent policy rate cuts and reserve requirement reduction could help bring in more liquidity to the economy and increase our people’s purchasing power,” Finance Secretary Ralph G. Recto said in a statement.

Mr. Balisacan noted there was a slowdown in tourism and leisure-related spending as typhoons caused the cancellation of 138 flights in the third quarter.

Gross capital formation, the investment component of the economy, expanded by 13.1% in the third quarter, a turnaround from the 0.3% dip a year ago.

“The turnaround in investments in durable equipment mainly drove capital formation growth. Private construction also sustained double-digit growth (11.9% from 10.3%), while public construction slowed down (3.7% from 21.7%) due to administrative delays and disruptions associated with adverse weather conditions,” Mr. Balisacan said.

Growth in government spending sharply slowed to 5% in the third quarter from 11.9% in the prior quarter.

‘The climate-related disruption and disturbances that happened in the last quarter have slowed down this (government) spending. And that’s even more so for those that are related to infrastructure,” Mr. Balisacan said.

Exports of goods and services contracted by 1% in the third quarter, a reversal from the 2.5% growth a year ago.

Imports of goods and services rose by 6.4% in the period ending September, an improvement from the 1.6% decline a year ago.

“This implied a deep contraction in net exports by 32.6%. Exports of goods were pulled down by the sharper decline in electronics products, particularly semiconductors, minus 17.9%,” Mr. Balisacan said.

He said the industry is “undergoing inventory corrections and has yet to meet the demands for new products in the global market.”

Economic managers are optimistic about faster growth in the fourth quarter as consumer spending is expected to pick up during the holiday season.

“We anticipate increases in holiday spending, more stable commodity prices (given low inflation), lower interest rates, and a robust labor market. In the areas affected by typhoons, recovery efforts will drive economic activity and, hopefully, build back better,” Mr. Balisacan said.

Mr. Recto said he expects private construction to rebound amid lower interest rates.

Since August, the Bangko Sentral ng Pilipinas (BSP) has lowered interest rates by 50 basis points (bps) this year, bringing the key rate to 6%.

‘HUGE DISAPPOINTMENT’
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the third-quarter GDP print was a “huge disappointment,” although it was better than its 4.8% forecast.

“For now, we’re sticking to our forecast that full-year GDP growth will slip to 5.4% this year from 5.5% in 2023, implying that headline growth will continue to slow in the fourth quarter to around 4.5%,” he said in a report.

Shivaan Tandon, Markets Economist at Capital Economics said the GDP growth is unlikely to be sustained as “slower growth in remittances, fiscal policy and weaker export demand weigh on activity.”

“While the worst is probably over for private consumption in the Philippines, we doubt this pace of consumption growth is sustainable. Admittedly, a continued boost from lower inflation and looser monetary policy should support consumption,” Mr. Tandon said.

Mr. Tandon said downside risks to domestic demand have gone up, as the US dollar is expected to strengthen.

“This raises the risk that the BSP, which has arguably been more focused on the Fed than other central banks in Asia (barring Bank Indonesia), opts for fewer rate cuts than may have otherwise been the case,” he said.

He noted exports will remain under pressure as global economy slows and the outlook remains clouded by possible tariffs to be imposed by US President-elect Donald Trump.

On the other hand, ANZ Research economists said private consumption will likely further improve, as the unemployment rate fell to 3.7% in September and real wages posted growth in the third quarter.

“The resilience in the Philippines’ labor market and steady growth in remittances will moderately buttress personal consumption going forward, in our view. We stress on ‘moderate’ as the steady labor market is partially offset by the need for households to rebuild savings as relayed in the household sentiment index,” ANZ Research’s economist Arindam Chakraborty and Chief Economist Sanjay Mathur said.

However, the ANZ Research economists said exports will likely remain muted in the near term, amid weak external demand.

“Overall, given the benign inflation outlook over the near term and the softer GDP growth in Q3 2024, we think the BSP will cut rates by another 25 bps in December 2024,” ANZ Research said.

BSP Governor Eli M. Remolona, Jr. has signaled a possible 25-bp rate cut in December. If realized, this would bring the benchmark to 5.75% by end-2024.