All indicators point to an upward trend in the Philippine economy, which has been seen to outperform its regional peers this year, despite faltering in the third quarter.
“We expect the economy to again outperform many of its regional peers in terms of growth this year. The third-quarter GDP (gross domestic product) result puts the economy on track to grow 5.8% across 2024 and 6% in 2025,” said Moody’s Analytics in its latest Asia Pacific Economic Preview.
It added that Monetary policy easing will support private consumption and investment growth, and bright spots for trade will emerge when global demand gains momentum.
“Strong growth is necessary to repair pandemic-era damage. Output remains about 10% below the pre-pandemic trend—worse than the average 6% to 7% shortfall across the ASEAN bloc,” the report said.
Last week, the National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said the Philippine economy slowed more than expected in the September quarter. GDP growth of 5.2% year on year undershot the 5.7% growth rate that we and the market expected and the 6.4% clip set in the June quarter.
“Our economy continues to grow steadily; the latest GDP figures indicate continuous expansion. Of the countries that have reported their third-quarter GDP growth rates, we remain one of the fastest-growing Asian economies,” Balisacan said in a briefing at the Philippine Statistics Authority (PSA) office in Quezon City.
“We follow Vietnam, which posted a 7.4% growth rate, and are ahead of Indonesia (with 4.9%), China (4.6 percent), and Singapore (4.1%), ” he added.
However, National Statistician Dennis Mapa said that the agriculture, forestry, and fishing sectors contracted by 2.8%. Balisacan explained that the contraction in the agriculture sector was due to the effects of El Niño, seven typhoons, and Habagat.
External headwinds
Moody’s Analytics added that poor external conditions were the source of much of the disappointment in the last quarter as the ear-on-year exports of goods and services dropped 1%. In addition, the electronics struggled, and tourist numbers trailed pre-pandemic levels by about 30%.
A day before the GDP data was announced, September’s industrial production and trade data had already been disappointing.
“Industrial output tumbled 6.3% year on year, while a revision more than halved August’s gain to 1.2%. In value terms, output fell 7.6%. Factory output data in the Philippines tends to be bumpy and prone to large revisions, but this latest poor reading is a concern,” Moody’s Analytics said.
The output of basic metals, including steel, aluminum, and iron, recorded the most significant year-on-year decrease. The report said that lower production of these metals, typically used in infrastructure and construction, could signal a building slowdown.
However, President Ferdinand Marcos Jr. has made infrastructure development a key focus of his administration, which is critical to the sector’s turnaround. The administration’s Build Better More (BBM) program has 197 flagship projects for implementation over the next five years. Of these projects, 121 aim to enhance physical connectivity.
Production in the key food category, which has the largest weighting in the industrial production index, still reflects damage from July’s Typhoon Carina, which declared a state of calamity in Metro Manila and other affected regions.
Again, the Marcos government pledged that food security is at the top of its political and economic agenda and vowed to lift agricultural output in the medium term.
According to Moody’s Analytics, the gloom over industrial production should lift as interest rates fall and global demand rises. It’s early days, but a turning of the tech downcycle will prove invaluable to Philippine manufacturers in the electronics and tech space.
Goods exports were a bleak element in the trade print, falling 7.6% year on year. The critical electronic products sector, which accounts for over half of total goods exports, tumbled 23.1%. Imports, by contrast, jumped 9.9%, resulting in a $5.1 billion deficit—the largest shortfall since January 2023.
By trading partners, the U.S. was the top export destination in September. However, shipments to China—the second largest buyer in 2023—tumbled 23.6%. That saw China become the fourth largest destination for Philippine exports behind Hong Kong and Japan. A low base effect flattered the jump in imports.
“A year ago, higher borrowing costs drove a pullback in demand for foreign-made goods. Still, September’s resilient import reading indicates robust domestic economic activity. As policy rate cuts in August and October filter through the economy, imports will climb,” Moody’s Analytics said.