The economy grew faster than expected in the third quarter, official data showed Thursday, but the government warned inflation remained a “major challenge.”
The 5.9 percent on-year expansion was well up from the 4.3 percent in the previous three months and was far better than the 4.7 percent predicted in a Bloomberg survey.
A sharp pick up in government spending was a key driver in the latest bump, the Philippine Statistics Authority (PSA) data showed.
The PSA said growth in the country’s gross domestic product (GDP) was also driven by strong performances of the services, industry, and agriculture sectors.
Economic Planning Secretary Arsenio Balisacan said the third quarter GDP made the Philippines the fastest economy in the region, surpassing Vietnam at 5.3 percent, Indonesia and China at 4.9 percent, and Malaysia at 3.3 percent—but acknowledged that inflation could weigh down household spending, which slowed for a second straight quarter to 5 percent.
“Inflation is still a major challenge,” Balisacan told reporters, adding that October’s slowdown in prices to 4.9 percent was still above the government’s 2-4 percent target.
Harvests boosted the supply of rice and vegetables last month, taking the steam out of food costs but Balisacan hoped the reduced rate would help consumer spending in the fourth quarter and in the quarters ahead.
The acceleration in July-September followed three straight quarters of slowing growth and Balisacan said the government’s annual target of 6-7 percent was “still doable.”
But the economy would need to grow 7.2 percent in the current period to reach the lower end of that range.
National Statistician and Civil Registrar General Dennis Mapa said agriculture, forestry, and fishing; industry; and services all grew in the third quarter, climbing 0.9 percent, 5.5 percent, and 6.8 percent, respectively.
From the expenditure or demand side of the economy, domestic demand — the sum of household final consumption spending, government final consumption expenditure, and gross capital formation or investment — improved to 3.9 percent in the third quarter, up from 2.2 percent in the previous quarter.
External demand or net exports, on the other hand, increased by 12.9 percent in the third quarter, up from 8.5 percent in the second quarter.
Household consumption growth slowed down year-on-year to 5.0 percent in the third quarter of 2023 from 5.5 percent in the previous quarter as food inflation increased to 8.2 percent in the third quarter from 7.4 percent in the second quarter.
Gross capital formation declined year-on-year by 1.6 percent, largely due to the substantial drawdown in inventories and the slowdown in durable equipment — 1.7 percent from 10.5 percent in the second quarter. These outweighed the faster growth in both public construction, which grew 26.9 percent from 0.7 percent and private construction which grew by 5.1 percent from 4.3 percent.
Balisacan said the acceleration of public spending in the third quarter was notable, tempering the decline of overall gross capital formation. Year-on-year, the growth of government final consumption expenditure rose to 6.7 percent in the third quarter from negative 0.7 percent in the second quarter.
Government fixed capital formation growth increased to 26.9 percent in the third quarter from 0.7 percent in the second quarter. Overall, government spending contributed 2.1 percentage points or 36 percent of the observed 5.9 percent GDP growth.
While the third quarter showed a strong rebound, Capital Economics senior Asia economist Gareth Leather warned “we don’t expect this strength to last”.
He said high interest rates and weaker global growth would sap the economy of its strength in the new year.
Moody’s Analytics, a unit of Moody’s Corp., earlier said that elevated inflation and higher interest rates would continue to dampen consumer spending in the coming months.
Inflation peaked at 8.7 percent in January 2023 before easing in the next six months. But higher food prices triggered a spike again in August at 5.3 percent, and to 6.1 percent in September 2023.
Business leaders said that while economic growth accelerated faster than anticipated, the economy needs to grow 7.2 percent in the fourth quarter to achieve the government’s target of 6 percent to 7 percent annual growth.
Speaker Ferdinand Martin G. Romualdez said the nation could still attain its minimum economic growth target this year of 6 percent with the help of the private sector.
Romualdez said two factors would result in faster economic expansion in the last quarter — increased consumer spending during the Christmas season and year-end disbursements and project completion by government agencies.
“The government is the principal driver of growth. We expect state offices to ramp up project and program implementation and activities. Funds released to them are meant to be spent, not saved, though expenditures should comply with relevant accounting, auditing, transparency, and accountability regulations,” Romualdez said.
“It’s a difficult challenge, but let’s do the most we can to hit the [growth] target. Let us not be distracted by political noise. Let’s continue supporting President [Marcos] in achieving economic prosperity for our people,” Romualdez said.
Albay Rep. Joey Sarte Salceda said with inflation back under control and growth back on track, President Marcos has the space and the opportunity to work on policies and priorities that are “forward-looking.”
Senior Deputy Speaker and Pampanga Rep. Aurelio Gonzales said he expects the economy to grow faster in the last quarter of this year.
“The last quarter of the year is usually a growth period because of the Christmas season, when workers in both the government and private sectors receive their year-end bonuses, cash gifts and other incentives,” Gonzales said.
It is also the time when millions of overseas Filipino workers and other Filipinos abroad send more money to their families and relatives back home, he said.
“So we can reasonably expect increased spending from our people. Businesses will anticipate this surge by producing more products and offering more services. We have already started seeing evidence of more economic activities during this season,” he said. — With AFP