Philippines' Economy Grows in First Quarter, But Misses Expectations -- Update

By Kosaku Narioka and Fabiana Negrin Ochoa

The Philippines economy is off to a mildly underwhelming start this year, with growth accelerating but missing expectations as high borrowing costs bite.

The country's gross domestic product rose 5.7% in the January-March period from a year earlier, following a 5.5% expansion in the previous quarter, data from the Philippine Statistics Authority showed Thursday.

The reading fell short of the median estimate of a 6.0% growth in a poll of economists by The Wall Street Journal.

Services-sector output, which includes trade of goods and generally accounts for more than half of the economy, rose 6.9% in the first quarter from a year earlier, the data showed.

Compared with the previous quarter, GDP increased 1.3% on a seasonally adjusted basis, down from the 2.1% growth seen in the fourth quarter of 2023.

The latest data shows a cooling in key parts of the economy, backing some economists' views that the Philippines will struggle to hit its full-year growth target.

While net exports made a positive contribution, the rest of the economy appears to be slowing, said Nicholas Mapa, senior economist at ING. Household consumption grew at the slowest pace since 2011.

Capital Economics expects further weakness in the rest of the year, as tight monetary policy, slower growth in remittances and weaker demand for exports weigh.

"The drag from tight monetary policy continued to curtail investment, which remains well below prepandemic levels," emerging Asia economist Shivaan Tandon wrote in a note.

The Philippine central bank kept its policy rate unchanged at 6.50% at its last meeting in April to rein in a recent pickup in inflation.

High rates will likely keep weighing on credit demand, leading CE to expect that domestic demand will stay subdued. Softer economic growth globally, meanwhile, will crimp both exports and remittances, CE said. Remittances made up about 8.5% of GDP last year, official data show.

The first-quarter GDP print comes ahead of a central bank meeting next week.

Some economists expect Bangko Sentral ng Pilipinas could start cutting rates later this year once inflation cools.

While ING doesn't expect a rate change next week, it thinks BSP Gov. Eli Remolona will likely factor in the below-consensus growth figures when the monetary board meets next Thursday.

Prior comments from Remolona pointed to a first rate cut by the first quarter of 2025, but recent data could prompt him to bring that timing forward, ING's Mapa said in a commentary.

"A sustained deceleration of inflation and disappointment on the growth front could convince the BSP to cut rates as soon as the Fed does later this year," Mapa said.

Write to Kosaku Narioka at [e-mail]

(END) Dow Jones Newswires

05-09-24 0036ET