UPDATE2: Philippines Q3 GDP growth slows to 6.1% on weaker capex, consumption

09, Nov. 2018

――Adds background, official comment in paragraphs 6-8

MANILA, NNA – The Philippines’ economic growth came in weaker than expected in the third quarter, decelerating slightly to 6.1 percent on year due to smaller gains in business investment and private consumption, official data showed Thursday.

The seasonally adjusted growth in the gross domestic product in the July-September period slowed from an upwardly revised 6.2 percent in April-June. The initial second-quarter GDP growth was 6.0 percent, a near three-year low.

The median forecast of 12 economists polled by Reuters was 6.3 percent growth for July-September.

Capital investment grew 16.5 percent on year, slower than the 21.2 percent rise the previous quarter. Private consumption, which accounts for about 60% of the total domestic output, rose 5.2 percent, also slowing from 5.9 percent in April-June, according to the Philippines Statistics Authority.

The tax reform that took effect in January led to higher income taxes for some households while rising food prices reduced disposable income, having a dampening effect on consumption, Shinobu Kikuchi, a researcher at Mizuho Research Institute, said in a report.

The Philippines has yet to tame inflation. Consumer prices rose 6.7 percent in October from a year earlier, unchanged from the 6.7-percent rise in September.

Annual consumer inflation rose an average 5.1 percent in the first 10 months of 2018, significantly above the central bank's target range of 2 to 4 percent.

Socioeconomic Planning Secretary Ernesto Pernia told reporters that the economy would have expanded by 6.7 percent to 7.0 percent if the inflation rate had not been so high.

On the upside, government expenditures increased 14.3 percent on year, with the pace of growth accelerating from 11.9 percent in April-June.

The Philippines is targeting GDP growth in a range of 7 percent to 8 percent this year, higher than the 6.5 percent projected by the World Bank and the International Monetary Fund.

Mizuho’s Kikuchi expects the economy to lose some steam in light of lower global demand and a series of rate hikes by the Philippines central bank, but she also said the GDP will continue growing at an annual pace of 6 percent to 7 percent through the end of 2019, supported by the Duterte administration’s plans to boost spending on infrastructure.