Economy likely slowed sharply in Q1

By Luisa Maria Jacinta C. Jocson, Reporter
PHILIPPINE economic growth likely slowed sharply in the first quarter as consumption weakened amid elevated inflation and rising borrowing costs, analysts said.
“While we believe private consumption continued to be a key driver of growth given its high share, the momentum has likely been slowing as the reopening boost has faded while high inflation remained a headwind,” Makoto Tsuchiya, assistant economist at Oxford Economics, said in an e-mail.
He said first-quarter gross domestic product (GDP) had likely expanded by 4.4%, much slower than the 8.2% a year earlier and 7.1% in the fourth quarter of 2022.
The government is targeting 6-7% GDP growth this year.
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the better-than-expected 7.6% growth last year was driven by robust household consumption.
However, household spending, which is one of the biggest contributors to Philippine economy, has been affected by high inflation that reached a 14-year high of 8.7% in January.
“We believe the (growth) momentum will slow in the first quarter of 2023 given the triple threat of peak inflation, elevated borrowing costs and muted support from government spending,” Mr. Mapa said in a Viber message.
“It would be hard to count out an upwards surprise in first-quarter growth given how open the economy is and the pace of household spending,” he added.
To curb inflation, the Bangko Sentral ng Pilipinas (BSP) has hiked borrowing costs by 425 basis points (bps) since May 2022, bringing the benchmark rate to 6.25%.
Inflation slowed to 7.6% in March from 8.6% in February, which the BSP has said is consistent with its assessment that inflation would remain elevated in the near term but gradually return to the 2-4% target by the fourth quarter.
“We certainly are starting to see signs of a peak in the surge in household borrowing that helped to power private consumption last year,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in an e-mail.
Weaker exports had also likely weighed on first-quarter GDP expansion.
“We expect goods exports to be a big drag on headline growth. As monthly trade data show, sequential momentum for goods exports has been falling rapidly since late last year into this year on the back of weaker electronics as well as a general slowdown in external demand. We think the latter factor particularly will weigh on Philippine exports throughout the year,” Mr. Tsuchiya said.
The country’s trade deficit widened to a five-month high of $5.74 billion in January as exports sharply declined. During the month, exports saw their steepest drop since the 26.7% decline in May 2020. In terms of value, it was also the lowest since the $4.54 billion in May 2020.
“The two-digit decline in exports in January implies a deteriorating external environment despite China’s reopening,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in an e-mail.
The slower pace of remittances also likely dampened GDP growth in January to March.
“Moreover, we’re now starting to see remittance growth — in peso terms, which matters more for actual spending — start to moderate, as the effects of last year’s currency collapse start to fade from year-on-year growth,” Mr. Chanco said.
Mr. Asuncion said lower cash remittances from overseas Filipino workers (OFW) would affect the buying capacity of their families and dependents in the Philippines.
In January, cash remittances coursed through banks rose by 3.5% year on year to $2.76 billion, the lowest in two months. The growth was also slower than 5.8% in the previous month.
Mr. Asuncion cited other indicators that point to slower first-quarter growth such as the high unemployment rate and a decline in bank lending.
“Moreover, bank loans sharply decelerated in January with the drag from real estate sector loans in a high interest rate setting, which does not bode well for broad spending on consumption and investments,” he added.
Mr. Asuncion said first-quarter GDP growth could be 5.8%-7.4%.
“GDP growth is gliding lower but still expected to surpass 6%, and curbs inflation’s further upside unlike in previous quarters when GDP overshot its potential by a mile,” he added.
The Philippine Statistics Authority is scheduled to release first-quarter GDP data on May 11.