(Bloomberg) -- The Philippines’ economic expansion gathered pace in the second quarter, signaling there is potential to grow even faster if borrowing costs were reduced to support consumption.
Gross domestic product rose 6.3% in the April-June period from a year ago, the statistics agency said Thursday, matching the median estimate in a Bloomberg News survey. That compares with a revised 5.8% growth in the prior three months. Quarter-on-quarter, the economy notched a lower-than-expected 0.5% expansion.
“While these numbers are encouraging, our growth performance could have been even more impactful on all Filipinos if not for the high inflation and interest rates that the country experienced,” Secretary Arsenio Balisacan said in a briefing in Manila. He said last year’s GDP growth would have been half-a-point higher had it not been for the elevated costs.
Consumption, which makes up more than 70% of output, matched the first quarter pace of 4.6%, which was the slowest growth post-pandemic. On quarter, household spending fell by 0.1% while growth in services, investment and industry slowed.
Deepening signs of strain in the economy could bolster the central bank’s resolve to reduce its benchmark interest rate from a 17-year high starting next week, although the timing is still unclear after July inflation accelerated. Balisacan on Thursday sought “manageable” inflation and interest rates to steer consumption and investment, enabling the Philippines to meet its 6%-to-7% growth target.
“The probability of a cut on Aug. 15 has increased slightly following the disappointing GDP print but we won’t be surprised if BSP waits for one or two more inflation prints before they decide to carry out their first 25 BPS cut,” said Bank of the Philippine Islands economist Emilio Neri. “If not in August, they can do an off-cycle reduction in early September or during their scheduled meeting in October.”
What Bloomberg Economics Says...
“This gives Bangko Sentral ng Pilipinas scope to hold off cutting rates a little longer. The central bank now has more more time to assess whether the peso’s recent resilience will stick - despite extreme market volatility. We see BSP standing pat at its Aug. 15 meeting but cutting soon after, likely in an inter-meeting move if the Federal Reserve starts its easing cycle in September.
—Tamara Henderson, Asean economist
For the full note, click here
The peso and stocks climbed after the data, reversing earlier losses, although the moves were broadly in line with the region. The currency rose 0.1% per dollar at 10:47 a.m. local time while the main equities index gained 0.5%.
Other highlights from the report
- Growth in government spending accelerated to 10.7% year-on-year from 1.7% reported for first quarter
- Investment gains also quickened to 11.5% along with industrial production
- Gains in services were broadly steady while exports slowed
- Clothing and footwear, as a component of consumer spending, contracted by 4.8%
Governor Eli Remolona said earlier this week that a pivot to monetary policy easing on Aug. 15 was “a little bit less likely” after inflation quickened above target last month. GDP must grow at least 6% in the second half to meet this year’s target, Balisacan said Thursday.
--With assistance from Cliff Venzon, Shinjini Datta, Cecilia Yap, Michael J. Munoz and Manolo Serapio Jr..
(Updates with more details and economic official’s comments.)
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