The Philippine economy likely grew 6.3 percent in the third quarter, faster than 6 percent in the second quarter, on the back of sustained investment and strong domestic demand, Moody’s Analytics said in a report over the weekend.
Moody’s Analytics, which operates independently of the Moody’s Investors Service credit rating agency, said investment and domestic demand likely offset a slowdown in factory output in July to September.
“The Philippines’ GDP growth likely hit 6.3 percent year-on-year in the September stanza following the 6-percent expansion in the June quarter. Manufacturing slowed in the third quarter, but investment and broader domestic demand were relatively upbeat, providing some offset,” Moody’s Analytics said.
The economy grew by a slower-than-expected 6.3 percent in the first half, after the second-quarter outturn was registered at only 6 percent, down from 6.6 percent in the first quarter.
The 6-percent expansion in April to June was the weakest in three years and ended a run of 10 consecutive quarters in which the economy grew at least 6.5 percent.
Economists blamed the slowdown in the second quarter to the government’s policy decisions that included the shutdown of Boracay island in May for the purpose of rehabilitation.
Other reasons cited were the faster inflation, trade imbalance, low agricultural output and the closure of mining companies under the previous leadership of the Environment Department.
The government is scheduled to release the third-quarter GDP figures later this month.
Moody’s Analytics said that despite the softer GDP growth, the Bangko Sentral ng Pilipinas might deliver another 25-basis-point interest rate hike by the end of the year to tame inflation, which was hovering near 7 percent year-on-year due to a combination of the weak peso, high oil prices and adverse weather that disrupted fresh produce supplies.
Inflation in September hit 6.7 percent, faster than 6.4 percent in August, bringing the first nine months’ average to 5 percent, above the upper limit of the target range of 2 percent to 4 percent this year.
The Bangko Sentral raised by another a total of 150 basis points the benchmark interest rates this year.
Economic Planning Secretary Ernesto Pernia said the closure of Boracay, a top tourist destination that draws two million tourists a year and pumps roughly $1 billion into the economy, “partly made a dent on the economy with growth in exports of service slowing.”
The government reopened the island resort on Oct. 26 both for domestic and foreign tourists.
Agriculture’s anemic 0.2-percent growth did not help in the second quarter, while mining also slowed due to the closure of several pits and higher mineral taxes. Industrial growth eased because of strict regulations of controlled chemicals and higher shipping rates.
“We are also gravely concerned about the almost stagnant output of the agriculture sector,” Pernia said, adding that a “gross deficiency in the domestic production of food” had helped fuel inflation.
Pernia said the economy would have to expand by at least 7.7 percent in the second semester to attain the low-end of the 7 percent to 8 percent target range for 2018.
London-based economic research consultancy firm Capital Economics also said the slowdown in GDP growth would likely continue over the second half of the year as tighter monetary policy and higher inflation would weigh on consumer spending.
Rajiv Biswas, Asia-Pacific chief economist of the London-based global information provider IHS Markit, said the government and central bank faced a more challenging economic outlook of softening growth momentum and rising inflation.
“With the BSP having commenced a monetary policy tightening cycle, the impact of higher policy rates will also be a moderate drag on GDP growth over [the] coming quarters,” Biswas said.
Biswas said a key risk to the near-term outlook was from further rises in world oil prices, which could push inflation higher and force more BSP rate hikes during the second half of 2018 and in 2019.
“Another downside risk to the near-term economic outlook is from the escalating US-China trade war, which could hit the East Asian manufacturing supply chain to China and have some negative impact on Philippines manufacturing exports,” Biswas said.