Philippine economy seen rebounding in fourth quarter, inflation risks temper outlook

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Philippine economy Q4 rebound outlook

Highlights

UA&P forecasts Philippine GDP growth at around 2% in Q3, with a potential Q4 rebound driven by Christmas demand, remittances, and infrastructure disbursements.
August employment data show resilience as employment rises to 49.79 million and unemployment falls to 5.3%, despite earlier monsoon flooding.
UA&P expects inflation to average nearly 8% in Q4, possibly prompting Bangko Sentral ng Pilipinas to raise policy rates by 25 basis points to 5.75% in December.

Fourth-quarter drivers and growth outlook

As reported by BusinessWorld Online, the University of Asia and the Pacific said in the October edition of The Market Call that gross domestic product growth likely remains subdued at around 2% in the third quarter because of sticky oil prices and slower National Government spending.

UA&P says the economy could post a noticeable rebound in the fourth quarter, helped by Christmas-related consumer demand, stronger remittances from overseas Filipino workers and quicker year-end infrastructure disbursements. It also expects moderate job expansion for the rest of the year as weather conditions improve and businesses prepare for the holiday shopping season.

Citing August employment data, UA&P says the labor market shows resilience despite heavy monsoon flooding. Employment expands to 49.79 million and the unemployment rate falls to 5.3% from 6% in July.

Remittances are also expected to underpin private consumption in the final quarter. Based on August data, personal remittances rise 2% to $3.37 billion, while remittances in peso terms increase 10.7% from a year earlier as currency depreciation lifts recipient families' purchasing power.

UA&P also points to favorable weather conditions and targeted Pag-IBIG loan allocations as factors that could help clear developer inventories in Metro Manila and add support to fourth-quarter growth.

Inflation pressure and policy implications

The growth rebound may still be limited by elevated consumer prices. UA&P expects inflation to average nearly 8% in the fourth quarter, a level that could weaken household spending power even during the peak holiday season.

The inflation outlook could also shape monetary policy in the closing months of the year. UA&P says the Bangko Sentral ng Pilipinas may deliver another 25-basis-point increase in December, which would bring the policy rate to 5.75%, as it maintains a hawkish stance and factors in El Niño risks.

Fiscal spending remains another area to watch. In the first seven months, National Government infrastructure and other capital outlays reach P522 billion, down 34.6% from a year earlier, even as the government sets aside P931.54 billion for infrastructure and other outlays for the year, excluding certain subsidies, equity injections and local government transfers.

In our earlier article, we looked at the Philippines’ planned reforms to peso-denominated government bond pricing and the country’s expected inclusion in J.P. Morgan’s Government Bond Index-Emerging Markets. We noted these steps could broaden the investor base and improve liquidity, but cheaper funding and stronger inflows still hinge on global rates and fiscal credibility, and they won’t automatically translate into higher productive investment without wider structural reforms.

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