Philippine economy slows more than expected in Q3, annual growth target in doubt

In the July-September quarter, the Philippine economy experienced its fifth consecutive quarter of contraction, with gross domestic product (GDP) growing by just 2.1%, according to official figures. This slowdown marked a decline from the previous quarter's revised 2.4% growth rate and remained one of the weakest performances in over five years. While a Reuters poll predicted a growth rate of 3% for the period, the actual figure fell far short of expectations.

On a quarter-over-quarter basis, the Philippine economy expanded by a mere 0.1%, down from the 0.6% growth observed in the prior quarter. To meet the government's lower end of its growth target for the year, which hovers between 3.5% and 4.5%, the economy would need to accelerate to a 6.3% growth rate during the fourth quarter.

Economic Planning Secretary Arsenio Balisacan made this observation during a press conference, citing the country's current challenges. He noted that elevated inflation has placed a significant strain on household demand, a critical component of the Philippine economy. Annual inflation surged to a three-year high of 7.8% in October, and Balisacan indicated that consumer prices were likely to stay elevated due to surging food and fuel costs.

The slowdown in household spending and government consumption further dampened economic growth. In the July-September quarter, household spending contracted for a fourth consecutive quarter, registering a 2.4% growth rate. Meanwhile, government consumption slowed to 6.8% from 8.3% in the previous quarter. The deteriorating situation was exacerbated by a 4.8% contraction in farm output, reversing the 2.9% growth rate observed in the preceding June quarter.

Despite the challenging economic landscape, Balisacan expressed confidence that the government's 5% to 6% growth target for 2027 remained attainable. However, he stressed that achieving this ambitious goal would necessitate robust investment, the mitigation of price pressures, and a resurgence in business confidence. The latter point was particularly noteworthy, as a corruption scandal surrounding flood control projects has cast a shadow over the nation's business environment.

Furthermore, the Bangko Sentral ng Pilipinas, the country's central bank, has already raised interest rates by 125 basis points since April, including the more substantial 50 basis point increase in October, to curb inflation. The higher borrowing costs resulting from these rate hikes have added an additional layer of complexity to the Philippine economic outlook.